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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] Transition Report to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the transition period from _______ to ______
Commission File Number 1-11415
AMERICAN STANDARD COMPANIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3465896
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE CENTENNIAL AVENUE, P.O. BOX 6820, PISCATAWAY, NEW JERSEY 08855-6820
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (908) 980-6000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
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Common Stock, $.01 par value New York Stock Exchange, Inc.
(and associated Common Stock Rights)
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Securities registered pursuant to Section 12 (g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the Registrant as of the close of business on March 11, 1997
was approximately $3.1 billion based on the closing sale price of the common
stock on the New York Stock Exchange consolidated tape on that date.
Number of shares outstanding of each of the Registrant's classes of Common
Stock, as of the close of business on March 11, 1997:
Common Stock, $.01 par value 73,820,967 Shares
Documents incorporated by reference:
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Part of the Form 10-K into
Document (Portions only) which document is incorporated.
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Annual Report to Stockholders for the year Parts I, II and IV
ended December 31, 1996
Definitive Proxy Statement dated March 26, 1997
for use in connection with the Annual Meeting
of Stockholders to be held on May 1, 1997 Part III
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TABLE OF CONTENTS
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PAGE
PART I
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Item 1. Business. 1
Item 2. Properties. 16
Item 3. Legal Proceedings. 17
Item 4. Submission of Matters to a Vote of Security Holders. 17
Executive Officers of the Registrant. 18
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. 21
Item 6. Selected Financial Data. 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 23
Item 8. Financial Statements and Supplementary Data. 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 23
PART III
Item 10. Directors and Executive Officers of the Registrant. 24
Item 11. Executive Compensation. 24
Item 12. Security Ownership of Certain Beneficial Owners and Management. 24
Item 13. Certain Relationships and Related Transactions. 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 25
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PART I
ITEM 1. BUSINESS
American Standard Companies Inc. (the "Company") is a Delaware corporation
that has as its only significant asset all the outstanding common stock of
American Standard Inc., a Delaware corporation ("American Standard Inc.").
Hereinafter, "American Standard" or "the Company" will refer to the Company, or
to the Company and American Standard Inc., including its subsidiaries, as the
context requires.
American Standard is a globally-oriented manufacturer of high quality,
brand-name products in three major product groups: air conditioning systems (59%
of 1996 sales); bathroom and kitchen fixtures and fittings (25% of 1996 sales);
and braking and control systems for medium-sized and heavy trucks, buses,
trailers and utility vehicles (16% of 1996 sales). American Standard is a market
leader in each of these business segments in the principal geographic areas in
which it competes. The Company's brand names include TRANE(R) and AMERICAN
STANDARD(R) for air conditioning systems, AMERICAN STANDARD(R), IDEAL
STANDARD(R), STANDARD(R) and PORCHER(R) for plumbing products and WABCO(R) for
braking and related systems. The Company emphasizes technologically advanced
products such as air conditioning systems that utilize energy-efficient
compressors and environmentally-preferred refrigerants, water-saving plumbing
products and commercial vehicle braking and related systems (including antilock
braking systems, "ABS") utilizing electronic controls. At December 31, 1996,
American Standard had 106 manufacturing facilities in 35 countries.
OVERVIEW OF BUSINESS SEGMENTS
Through 1996 American Standard operated three business segments: Air
Conditioning Products, Plumbing Products and Automotive Products. In January
1997 the Company announced formation of its Medical Systems Group.
AIR CONDITIONING PRODUCTS. American Standard is a leading U.S.
manufacturer of air conditioning systems for both domestic and export sales, and
also manufactures air conditioning systems outside the United States. Air
conditioning products are sold by the Trane Company ("Trane") primarily under
the TRANE(R) and AMERICAN STANDARD(R) names. Sales to the commercial and
residential markets accounted for approximately 75% and 25%, respectively, of
Trane's total sales in 1996. Approximately 60% of Trane's sales in 1996 was in
the replacement, renovation and repair markets which have been less cyclical
than the new residential and commercial construction markets. Management
believes that Trane is well positioned for growth because of its high quality,
brand-name products, significant existing market shares, the introduction of new
product features such as electronic controls, the expansion of its broad
distribution network, conversion to products utilizing environmentally-preferred
refrigerants and expansion of operations to developing market areas throughout
the world, principally the Asia-Pacific area and Latin America.
PLUMBING PRODUCTS. American Standard is a leading manufacturer in Europe,
the U.S. and a number of other countries of bathroom and kitchen fixtures and
fittings for the residential
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and commercial construction markets and retail sales channels. Plumbing Products
manufactures and distributes its products under the AMERICAN STANDARD(R), IDEAL
STANDARD(R), STANDARD(R) and PORCHER(R) names. Of Plumbing Products' 1996 sales,
74% was derived from operations outside the United States and 26% from within.
Management believes that Plumbing Products is well positioned for growth due to
the high quality associated with its brand-name products, significant existing
market shares in a number of countries and the expansion of existing operations
in developing market areas throughout the world, principally the Far East, Latin
America and Eastern Europe.
AUTOMOTIVE PRODUCTS. Automotive Products ("WABCO") is a leading
manufacturer, primarily in Europe and Brazil, of braking and related systems for
the commercial and utility vehicle industry. Its most important products are
pneumatic braking systems and related electronic and other control systems,
including antilock braking systems ("ABS"), marketed under the WABCO(R) name for
medium-size and heavy trucks, tractors, buses, trailers and utility vehicles.
WABCO supplies vehicle manufacturers such as Mercedes-Benz, Volvo, Iveco (Fiat),
RVI (Renault) and Rover. Management believes that WABCO is well positioned to
benefit from its strong market positions in Europe and Brazil and from
increasing demand for ABS and other sophisticated electronic control systems in
a number of markets (including the commercial vehicle market in the United
States, where phase-in of ABS has been mandated beginning in 1997), as well as
from the technological advances embodied in the Company's products and its close
relationships with a number of vehicle manufacturers.
MEDICAL SYSTEMS In January 1997, the Company announced formation of its
Medical Systems Group to pursue initiatives in the medical diagnostics field.
The Company has for the last several years supported the development of two
small medical diagnostic product groups focusing on test instruments using laser
technology and reagents. The Company had invested an aggregate of approximately
$40 million in the development of these businesses through December 31, 1996.
Based upon the progress and prospects for those two businesses, the
Company decided to explore acquisition opportunities to accelerate the
commercialization of its technology and expand the number of diagnostic tests
covered by its products. Accordingly, on March 10, 1997, the Company entered
into definitive agreements to acquire the European medical diagnostic business
of Sorin Biomedica S.p.A., an affiliate of the Fiat Group (the "Sorin Business")
and, by means of a merger, all the outstanding shares of Incstar Corporation
("Incstar"), a biotechnology company based in Stillwater, Minnesota, in which
Sorin Biomedica S.p.A. indirectly owned a 52% interest. In 1996, sales for the
Sorin Business were approximately $80 million and for Incstar approximately $40
million. The aggregate cost of the acquisitions of the Sorin Business and
Incstar is expected to be approximately $220 million (including fees and
expenses).
STRATEGY
GLOBALIZATION
American Standard has historically had a significant global presence. One
of its major strategic objectives is to continue to expand that presence through
the growth of existing operations and the establishment of new operations in
developing market areas in the Far East, Latin America and Eastern Europe. The
Company often uses joint ventures with local manufacturing and distribution
partners to facilitate risk sharing and to allow the Company to benefit from the
additional expertise of local market participants.
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Air Conditioning Products plans to continue to expand its operations in
the Far East, Latin America and Europe. In 1994 it established an operation in
Australia and continues to expand its sales forces in the Far East, Latin
America, the Middle East and India. In December 1995 the Company completed
arrangements for the development and expansion of its air conditioning business
in the People's Republic of China ("PRC"), to become an integrated manufacturer,
marketer and distributor of a broad range of air conditioning systems and
related products for residential and commercial applications. The Company and a
minority investor established ASI China Holdings Limited ("ASI China"), in which
the Company has an ownership interest of 64.4%, and formed A-S Air
Conditioning Products Limited ("ASAP"), owned 50.4% by ASI China, to establish
or acquire majority ownership in up to five manufacturing joint ventures as well
as sales and service businesses in the PRC. The Company contributed to ASAP its
50% interest (valued at $10 million) in a Hong Kong joint venture (which imports
and distributes air conditioning products) and has committed to contribute $20
million in cash, $16 million of which had been contributed as of December 31,
1996. The minority investor in ASI China and third-party investors in ASAP have
committed to contribute a total of $62 million, $50 million of which had been
contributed as of December 31, 1996. As of December 31, 1996, ASAP had acquired
majority ownership in three manufacturing joint ventures and in conjunction
therewith assumed debt of $21 million.
Plumbing Products has entered new markets through joint ventures in
Eastern Europe, Spain, Portugal and Vietnam and is continuing to expand using
this approach. In 1995 operations were expanded in France through the
acquisition of Porcher (see "Plumbing Products Segment"). Plumbing Products
continues to expand its operations in the PRC through its affiliate, A-S China
Plumbing Products Limited ("ASPPL"), in which American Standard has a current
ownership position of 28% and effective control over day-to-day operations.
ASPPL has expanded its operations to Beijing, Tianjin, Shanghai and Guangzhou in
order to provide a full product line of fixtures, fittings, and bathtubs
throughout the PRC market. ASPPL, which had total assets of approximately $169
million at December 31, 1996, has entered into seven joint ventures with local
business concerns which, together with one wholly-owned operation, have received
business licenses from Chinese government authorities. These include two
recently constructed chinaware manufacturing facilities, an existing chinaware
manufacturing facility being expanded, two operating fittings plants and two
operating steel tub factories. The Company's ownership interest in ASPPL is
expected to increase over time to at least 51% of the equity of ASPPL through
reinvestment of royalties and management fees and through additional stock
purchases.
Automotive Products, headquartered in Europe, since 1993 has established a
joint venture in the PRC, acquired a business in Spain, is in the process of
establishing joint ventures in Eastern Europe and is expanding the volume of
business done through its existing joint ventures in the United States and
Japan.
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DEMAND FLOW(R) TECHNOLOGY*
To build on its position as a leader in each of its industries and to
increase sales and operating income, American Standard began in 1990 to apply
Demand Flow to all its businesses. Under Demand Flow, products are produced as
and when required by the customer, the production process is streamlined, and
quality control is integrated into each step of the manufacturing process. The
benefits of Demand Flow include better customer service, quicker response to
changing market needs, improved quality control, higher productivity, increased
inventory turnover rates and reduced requirements for working capital and
manufacturing and warehouse space.
As part of American Standard's strategy to integrate Demand Flow into all
of its operations, most of American Standard's approximately 44,000 employees
worldwide have been trained in Demand Flow, which has been implemented in
substantially all of American Standard's production facilities. American
Standard is also applying Demand Flow to administrative functions and is
re-engineering its organizational structure to manage its businesses based on
processes instead of functions.
American Standard believes that its implementation of Demand Flow methods
has achieved significant benefits. Product cycle time (the time from the
beginning of the manufacturing of a product to its completion) has been reduced
and, on average, inventory turnover rates have almost tripled since 1990.
Principally as a result of the implementation of Demand Flow American Standard
has reduced inventories by 41% from December 31, 1989 through December 31, 1996,
while related sales have grown 74% for the same period. American Standard
further believes that as a result of the introduction of Demand Flow employee
productivity has risen significantly, customer service has improved and, without
reducing production capacity, the Company has been able to free more than three
million square feet of manufacturing and warehouse space, allowing for
expansion, plant consolidation or other uses.
AIR CONDITIONING PRODUCTS SEGMENT
Air Conditioning Products began with the 1984 acquisition by the Company
of the Trane Company, a manufacturer and distributor of air conditioning
products since 1913. Air conditioning products are sold primarily under the
TRANE(R) and AMERICAN STANDARD(R) names. In 1996 Trane, with revenues of $3,437
million, accounted for approximately 59% of the Company's sales and 60% of its
operating income (excluding an asset impairment charge). Trane derived 29% of
its 1996 sales from outside the United States. Approximately 60% of Trane's
sales in 1996 was in the replacement, renovation and repair markets, which in
general are less cyclical than the new residential and commercial construction
markets.
Trane manufactures three general types of air conditioning systems. The
first, called "unitary," which is sold for residential and commercial
applications, is a factory-assembled central air conditioning system which
generally encloses in one or two units all the components to cool or heat,
clean, humidify or dehumidify, and move air. The second, called "applied," is
typically custom-engineered for commercial use and involves on-site installation
of several different components of the air conditioning system. Trane is a world
leader in both unitary and applied air conditioning products. The third type,
called "mini-split," is a small unitary air conditioning system, generally for
residential use, which operates without air ducts. Trane
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* Demand Flow is a registered trademark of J-I-T Institute of Technology,
Inc.
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manufactures and distributes mini-split units in the Far East, Europe, the
Middle East and Latin America.
Trane competes in all of its markets on the basis of service to customers,
product quality and reliability, technological leadership and price.
Product and marketing programs have been, and are being, developed to
increase penetration in the growing replacement, repair, and servicing
businesses, in which margins are generally higher than on sales of original
equipment. Much of the equipment sold in the fast-growing air conditioning
markets of the 1960's and 1970's is reaching the end of its useful life. Also,
equipment sold in the 1980's is likely to be replaced earlier than originally
expected with higher-efficiency products recently developed to meet required
efficiency standards and to capitalize on the availability of
environmentally-preferred refrigerants.
In May 1994 a subsidiary of the Company, Standard Compressors Inc.,
concluded arrangements for a partnership, Alliance Compressors, formed in
December 1993 with Heatcraft Technologies Inc., a subsidiary of Lennox
International Inc., for the manufacture of compressors for use in air
conditioning and refrigeration equipment. On December 31, 1996, The Alliance
Compressors partnership was restructured to admit a new partner, Copesub, Inc.,
a subsidiary of Emerson Electric Co. Following the restructuring, Standard
Compressors Inc. and Heatcraft Technologies Inc. each own a 24.5% interest in
Alliance and Copesub, Inc. owns a 51% interest. Alliance plans to develop,
manufacture, market and sell, primarily to companies related to Standard
Compressors Inc. and Heatcraft Technologies Inc., scroll compressors utilized
mainly in residential central air conditioning applications. Alliance will
operate principally from a newly constructed facility in Natchitoches,
Louisiana.
Many of the products manufactured by Trane utilized CFCs and in the past
utilized CFCs as refrigerants. Various federal and state laws and regulations,
principally the 1990 Clean Air Act Amendments, require the eventual phase-out of
the production and use of these chemicals because of their possible deleterious
effect on the earth's ozone layer if released into the atmosphere. Phase-in of
substitute refrigerants will require replacement or modification of much of the
air conditioning equipment already installed, which management believes has
created a new market opportunity. In order to ensure that Company products will
be compatible with the substitute refrigerants, Trane has been working closely
with the manufacturers that are developing substitute refrigerants. See
"General-Regulations and Environmental Matters."
Various federal and state statutes, including the National Appliance
Energy Conservation Act of 1987, as amended, impose energy efficiency standards
for certain of the Company's unitary air conditioning products. Although the
Company has been able to meet or exceed such standards to date, stricter
standards in the future could require substantial research and development
expense and capital expenditures to maintain compliance.
At December 31, 1996 Air Conditioning Products had 33 manufacturing plants
in 10 countries, employing approximately 20,700 people.
Air Conditioning Products comprises three operating groups: Unitary
Products, North American Commercial, and International.
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UNITARY PRODUCTS GROUP
Unitary Products, which accounted for 36% of Air Conditioning Products'
1996 sales, manufactures and distributes products for commercial and residential
unitary applications in the United States. This group benefits the most from the
growth of the replacement market for residential and commercial air conditioning
systems. Other major suppliers in the unitary market are Carrier, Rheem, Lennox,
Goodman Industries and Intercity Products.
Commercial unitary products range from 2 to 120 tons and include
combinations of air conditioners, heat pumps, and gas furnaces, along with
variable-air-volume equipment and integrated control systems. Typical
applications are in retail stores, small-to-medium-size office buildings,
manufacturing plants, restaurants, and commercial buildings located in office
parks and strip malls. These products are sold through commercial sales offices,
independent wholesale distributors and company-owned dealer sales offices in
over 375 locations. Residential central air conditioning products range from 1
to 5 tons and include air conditioners, heat pumps, air handlers, furnaces, and
coils. These products are sold through independent wholesale distributors and
Company-owned sales offices in over 250 locations to dealers and contractors who
sell and install the equipment.
During 1995 and 1996 the Unitary Products Group successfully introduced
several new products including a new line of outdoor condensing units for the
AMERICAN STANDARD(R) brand; a very high efficiency residential air conditioner;
an ultra-high efficiency packaged air conditioner; modulating gas and variable
frequency drive large rooftop units; rooftop units with special features that
appeal to national accounts; and a large rooftop line (27.5 tons to 50 tons).
The commercial unitary business also concentrated on indoor air quality
enhancements and new capabilities for existing products.
The Company also markets an AMERICAN STANDARD(R) brand name product to
serve distributors who typically carry other products in addition to air
conditioning products.
NORTH AMERICAN COMMERCIAL GROUP
North American Commercial Group, which accounted for 37% of Air
Conditioning Products' 1996 sales, manufactures and distributes products in the
United States for sale in the U.S. and Canada for air conditioning applications
in larger commercial, industrial, and institutional buildings. Other major
suppliers of commercial systems are Carrier, McQuay and York.
North American Commercial Group distributes its products through 95 sales
offices. Thirty-four of these offices are Company-owned and 61 are franchised.
The Company acquired the Toronto, Canada, and St. Louis, Missouri offices in
1994 and the Albany, New York, and Nashville, Tennessee offices in 1995. In 1996
the Company acquired the Grand Rapids, Michigan; Pittsburgh, Pennsylvania; and
New Haven, Connecticut, offices and expects to continue to acquire major sales
offices from its franchisees.
Over the last few years the North American Commercial Group has added
additional aftermarket business activities, such as emergency rentals of air
conditioning equipment. Also, the group has expanded its line to include
components for converting installed centrifugal chiller products to use more
environmentally-preferred refrigerants.
During 1995 and 1996 the Company continued its introduction of a number of
newer products broadening the line of high-efficiency centrifugal chillers,
expanding the air cooled
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series R chiller line, and introducing a new absorption line. Integrated Comfort
Systems continue to grow as a percentage of total sales with the introduction
of Tracer Summit and wireless thermostats. Indoor air quality is emerging as a
significant new application to be served by the Company's products and services.
INTERNATIONAL GROUP
The International Group, which accounted for approximately 27% of Trane's
1996 sales manufactures applied and unitary products in foreign facilities
operated by subsidiaries and joint ventures and exports many of the products
manufactured in the United States by the Unitary Products and North American
Commercial Groups. Like the North American Commercial Group, the International
Group has an extensive network of sales and service agencies, both Company-owned
and franchised, to provide maintenance and warranty service for its equipment
installed around the world.
Trane expects to continue the expansion of its presence outside the U.S.
In the Asia-Pacific region Trane recently established operations in Australia as
well as three manufacturing joint ventures in the PRC (see "Globalization") and
expanded its operations in Malaysia. In the early 1990's it purchased an air
conditioning manufacturing and distribution firm in Taiwan, and entered into a
sales and manufacturing joint venture in Thailand. In Europe, in addition to its
plants in Epinal and Charmes, France, the group opened plants in Mirecourt and
in Colchester, U.K., in 1992. A joint venture in Egypt commenced operations in
1992 to serve markets in the Middle East.
PLUMBING PRODUCTS SEGMENT
Plumbing Products manufactures and distributes bathroom and kitchen
fixtures and fittings primarily under the IDEAL STANDARD(R), AMERICAN
STANDARD(R), STANDARD(R) and PORCHER(R), names. In 1996 Plumbing Products, with
revenues of $1,452 million, accounted for 25% of the Company's sales and 19%
of its operating income (excluding an asset impairment charge). Plumbing
Products derived approximately 74% of its total 1996 sales from operations
outside the United States.
Of Plumbing Products' sales, 45% consists of vitreous china fixtures, 22%
consists of fittings (typically brass), 9% consists of bathtubs, and the
remainder consists of related plumbing products. Throughout the world these
products are generally sold through wholesalers and distributors and installed
by plumbers and contractors. In total the residential market accounts for
approximately 75% of Plumbing Products' sales, with the commercial and
industrial markets providing the remaining 25%.
Plumbing Products operates through four primary geographic groups:
European Plumbing Products, U.S. Plumbing Products, Americas International and
the Asia-Pacific Group. Plumbing Products' fittings operations are organized as
the Worldwide Fittings Group, which has primary responsibility for faucet
technology, product development and manufacturing, with manufacturing facilities
in Germany, Bulgaria, the U.S., and Mexico. Worldwide Fittings sales and
operating results are reported in the four primary geographic groups within
which it operates.
European Plumbing Products, which sells products primarily under the brand
names IDEAL STANDARD(R) and PORCHER(R), manufactures and distributes bathroom
and kitchen fixtures and fittings through subsidiaries or joint ventures in
Germany, Italy, France, England, Greece, the Czech Republic, Spain, Portugal,
and Egypt. In November 1995 the Company
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acquired substantially all of the remaining outstanding common shares and
convertible bonds of Porcher S.A. ("Porcher"), a French manufacturer and
distributor of plumbing products in which the Company previously had an
ownership interest of 32.88%.
U.S. Plumbing Products manufactures bathroom and kitchen fixtures and
fittings, selling under the brand names AMERICAN STANDARD(R) and STANDARD(R) in
the United States. Americas International manufactures bathroom and kitchen
fixtures and fittings, selling under the names AMERICAN STANDARD(R), IDEAL
STANDARD(R), and STANDARD(R) through its wholly owned operations in Mexico,
Canada, and Brazil and its majority-owned subsidiaries in Central America.
The Asia-Pacific Group manufactures bathroom and kitchen fixtures and
fittings, selling under the names AMERICAN STANDARD(R), IDEAL STANDARD(R), and
STANDARD(R) through its wholly owned operations in South Korea, its
majority-owned operations in Thailand and the Philippines, and its manufacturing
joint venture in Indonesia and is developing a new joint venture in Vietnam. In
1996, a wholly-owned marketing operation was established in Japan. The Company
is also significantly expanding its operations in the PRC. See -
"Globalization".
The market for the Company's plumbing products is divided into the
replacement and remodeling market and the new construction market. The
replacement and remodeling market accounts for about 60% of the European and
U.S. groups' sales but only about 40% of the sales of the Far East group, for
which new construction is more important. In the United States and Europe the
replacement and remodeling market has historically been more stable than the new
construction market and has shown moderate growth over the past several years.
In 1995 the new construction market in Europe declined, especially in Germany
and France, after recovering somewhat in 1994 and 1993. In the U.S. the new
construction market hit its recent low in 1992 but had some recovery through
1996. The new construction market, in which the product selection is made by
builders or contractors, is more price-competitive and volume-oriented than the
replacement and remodeling market. In the replacement and remodeling market
consumers make the model selection and, therefore, this market is more
responsive to quality and design than price, making it the principal market for
higher-margin luxury products. Although management believes it must continue to
offer a full line of fixtures and fittings in order to support its distribution
system, Plumbing Products' current strategy is to focus on increasing its sales
of higher-margin products in the middle and upper segments of both the
remodeling and new construction markets.
Plumbing Products also has continued its programs to expand its presence
in high-quality showrooms and showplaces featuring its higher-end products in
certain major countries. These programs, along with expanded sales training
activities, have enhanced the image of the Company's products with interior
designers, decorators, consumers and plumbers.
U.S. Plumbing Products is focusing on the unique needs of the growing mass
retail home center industry, using products sourced from several of the
Company's manufacturing locations throughout the Americas. This market channel
has become a significant part of U.S. Plumbing Products' sales and is expected
to continue to grow.
In an effort to capture a larger share of the replacement and remodeling
market, over the last few years Plumbing Products has introduced a variety of
new products designed to suit customer tastes in particular countries. New
offerings include additional colors and ensembles, bathroom suites from
internationally known designers, and electronically controlled
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products. Faucet technology is centered on anti-leak, anti-scald and other
features to meet emerging consumer and legislative requirements.
Water-saving fixtures and fittings have been a major focus of Plumbing
Products for the past several years, particularly in light of recent water
shortages experienced in a number of areas of the U.S. The Company produces one
of the most extensive lines of water-saving fixtures available in the United
States. Manufacture of water-saving toilets was mandated for residential use by
federal law commencing in January 1994 and for commercial use in January 1997.
Many of the Company's bathtubs are made from a proprietary porcelain on
metal composite, AMERICAST(R), which has gained an increasing share of the
worldwide market. Products made from the composite AMERICAST(R) have the
durability of cast iron with only one-half the weight and are characterized by
improved resistance to breaking and chipping. AMERICAST(R) products are easier
to ship, handle and install and are less expensive to produce than cast iron
products. Use of this advanced composite was extended to kitchen sinks, bathroom
lavatories and acrylic surfaced products during the early 1990's.
At December 31, 1996, Plumbing Products employed approximately 18,000
people and, including affiliated companies, had 57 manufacturing plants in 25
countries.
In the U.S. Plumbing Products has several important competitors, including
Kohler Company and Masco Corporation in selected product lines. There are also
important competitors in foreign markets, for the most part operating
nationally. Friederich Grohe GmbH, the major manufacturer of fittings in Europe,
is a pan-European competitor. In Europe Villeroy Boch and Sanitec are the major
fixtures competitors, and in the Far East Toto is the major competitor. Plumbing
Products competes in most of its markets on the basis of service to customers,
product quality, reliability and price.
AUTOMOTIVE PRODUCTS SEGMENT
Operating under the WABCO(R) name, Automotive Products manufactures air
brake and related systems for the commercial vehicle industry in Europe and
Brazil. WABCO's most important products are pneumatic braking systems and
related electronic control and other systems and components (including ABS) for
medium-size and heavy trucks, tractors, buses, trailers and utility vehicles. In
1996 WABCO, with sales of $916 million, accounted for 16% of the Company's
sales and 21% of its total operating income (excluding an asset impairment
charge). The Company believes that WABCO is a worldwide technological leader in
the heavy truck and bus braking industry. Electronic controls, first introduced
in ABS in the early 1980's, are increasingly applied in other systems sold to
the commercial vehicle industry.
WABCO's products are sold directly to vehicle and component manufacturers.
Spare parts are sold through both original equipment manufacturers and an
independent distribution network. Although the business is not dependent on a
single or related group of customers, sales of truck braking systems are
dependent on the demand for heavy trucks. Some of the Company's important
customers are Mercedes-Benz, Volvo, Iveco (Fiat), RVI (Renault) and Rover.
Principal competitors are Knorr, Robert Bosch, and Allied Signal. WABCO competes
primarily on the basis of customer service, quality and reliability of products,
technological leadership and price.
The European market for new trucks, buses, trailers, and replacement parts
recovered in 1994 and 1995, before declining again in 1996. European legislation
mandating the phase-
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in of ABS beginning in 1991 has had a positive impact on sales and is expected
to continue to do so. The Brazilian market declined significantly in 1996 after
three years of continued growth.
Through 1996 the WABCO(R) ABS system, which the Company believes leads the
market, has been installed in approximately 1.2 million heavy trucks, buses, and
trailers worldwide since 1981. Annual sales volume in Europe was approximately
146,000 units in 1996 (down from 175,000 units in 1995) and 67,000 units (56,000
units in 1995) in other markets, primarily the United States and Japan. In
addition, WABCO has developed an advanced electronic braking system,
electronically controlled pneumatic gear shifting systems, electronically
controlled air suspension systems, and automatic climate-control and
door-control systems for the commercial vehicle industry. These systems have
resulted in greater sales per vehicle for WABCO. Significant progress was made
in recent years in market acceptance of electronically controlled systems. New
products under development include additional electronic drive line control
systems. In addition, WABCO has developed and implemented an electronic data
interchange system, which links certain customers directly to WABCO's
information systems, providing timely, accurate information and just-in-time
delivery to the customer.
At December 31, 1996, WABCO and affiliated companies employed
approximately 5,800 people and had 14 manufacturing facilities and 7 sales
organizations operating in 17 countries. Principal manufacturing operations are
in Germany, France, the United Kingdom, the Netherlands and Brazil. WABCO has
joint ventures in the United States with Rockwell International (Rockwell WABCO)
and Cummins Engine Co. (WABCO Compressor Manufacturing Co., a manufacturing
joint venture formed in 1996 to produce air compressors designed by WABCO), in
Japan with Sanwa Seiki (SANWAB), in India with TVS Group (Clayton Sundaram) and
in the PRC.
In January 1994 the Company acquired Perrot, a German brake manufacturer.
Through this acquisition the Company is able to offer complete brake systems for
trucks, buses and trailers, especially in the important and growing air-disc
brake business.
Since 1991 ABS for commercial vehicles has been gaining acceptance in the
United States and Japan, where WABCO participates through its joint venture
operations. Rockwell WABCO is now a supplier of WABCO systems to Freightliner,
Mack, Volvo-GM, Kenworth, Peterbilt and other vehicle manufacturers in North
America. SANWAB supplies Hino, Nissan and trailer manufacturers in Japan. In
most European countries, ABS has become mandatory for commercial vehicles. In
March 1995, the U.S. Department of Transportation, National Highway Traffic
Safety Administration, adopted amended federal regulations which require that
new medium and heavy vehicles be equipped with ABS. These amended regulations
will be phased in over a two-year period beginning in March 1997. WABCO believes
it is in a good position to take advantage of this opportunity.
MEDICAL SYSTEMS GROUP
In January 1997, the Company announced formation of its Medical Systems
Group to pursue initiatives in the medical diagnostics field. The Company has
for several years supported the development of two small medical diagnostic
product groups focusing on test instruments using laser technology and reagents.
The Company had invested an aggregate of approximately $40 million in the
development of these businesses through December 31, 1996.
10
<PAGE> 13
Based upon the progress and prospects of those two businesses, the Company
decided to explore acquisition opportunities to accelerate the commercialization
of its technology and expand the number of diagnostic tests covered by its
products. Accordingly, on March 10, 1997, the Company entered into definitive
agreements to acquire the European medical diagnostic business (the "Sorin
Business") of Sorin Biomedica S.p.A., an affiliate of the Fiat Group and, by
means of a merger, all the outstanding shares of Incstar Corporation
("Incstar"), a biotechnology company based in Stillwater, Minnesota, in which
Sorin Biomedica S.p.A. indirectly owned a 52% interest.
The Sorin Business both develops and produces reagents to identify the
presence in blood of diseases and other substances that are indicative of a
medical patient's condition, and distributes equipment used to perform
diagnostic tests. The Sorin Business is headquartered in Saluggia, Italy, where
its manufacturing facility is located. The principal markets for the products of
the Sorin Business are Western Europe and the United States. Its sales in 1996
were approximately $80 million.
Incstar develops, manufactures and markets individual test reagents, test
kits and related products used by major hospitals, clinical reference
laboratories and researchers involved in diagnosing and treating immunological
conditions. Incstar also produces and markets histochemical antisera and natural
and synthetic peptides used in clinical diagnostic and medical research. Its
products focus on diagnostic tests for autoimmune, infectious disease,
endocrinology and bone and mineral metabolism product segments, utilizing a
variety of technologies. Incstar's sales in 1996 were approximately $40 million.
The Sorin Business and Incstar will be acquired in two transactions: (a)
the acquisition from Sorin of the Sorin Business and (b) the merger of a wholly
owned subsidiary of the Company with Incstar. The aggregate cost of the
acquisitions is expected to be approximately $220 million (including fees and
expenses. Completion of the transactions is subject to customary conditions,
including regulatory consents and approvals, and in the case of Incstar,
shareholder approval. The Sorin and the Incstar transactions are each
conditioned upon the closing of the other, which closings are expected to occur
in the first half of 1997.
The focus of the Company's existing medical businesses is on instruments
for obstetrical/gynecological and gastrointestinal tests. The products of its
subsidiary Sienna Biotech, Inc. are based on a core technology named Copalis(TM)
for Coupled Particle Light Scattering. Several of Sienna's products have
received clearance from the U.S. Food and Drug Administration ("FDA").
The Company's subsidiary Alimenterics, Inc. is developing certain clinical
laboratory systems for non-invasive diagnostics of gastrointestinal disorders
using an automated Laser Assisted Ratio Analyzer ("LARA(TM)") for the
measurement of stable isotopes in breath. Initial applications for regulatory
approvals of Alimenterics' products have been made in Europe and are planned to
be made to the FDA in 1997.
The Company believes that the Medical System Acquisitions will position it
to develop its medical products more quickly and effectively than would
otherwise have been possible. The Company may build this group further through
acquisitions of businesses that are complementary and would permit further
acceleration of development and distribution of its products as well as through
further research and development investments. There can be no assurance that the
Company will be successful in completing the Medical Systems Acquisitions.
11
<PAGE> 14
BUSINESS SEGMENT DATA
Information concerning revenues and operating profit and loss attributable
to each of the Company's business segments and geographic areas is set forth in
the Company's 1996 Annual Report to Stockholders on page 14, "Five-Year
Financial Summary", under the caption "Segment Data", on pages 15 though 19
under the caption entitled "Management's Discussion and Analysis" and on page 43
under the caption entitled "Segment Data" which are incorporated herein by
reference, and information concerning identifiable assets of each of the
Company's business segments is set forth on page 43 of the Company's 1996 Annual
Report to Stockholders under the caption entitled "Segment Data", which is
incorporated herein by reference.
GENERAL
RAW MATERIALS
The Company purchases a broad range of materials and components throughout
the world in connection with its manufacturing activities. Major items include
steel, copper tubing, aluminum, ferrous and nonferrous castings, clays, motor
and electronics. The ability of the Company's suppliers to meet performance and
quality specifications and delivery schedules is important to its operations.
The Company is working closely with its suppliers to integrate them into the
Demand Flow manufacturing process by developing with them just-in-time supply
delivery schedules to coordinate with the Company's customer demand and delivery
schedules. The Company expects this closer working relationship to result in
better control of inventory quantities and quality and lower related overhead
and working capital costs. The energy and materials required for its
manufacturing operations have been readily available, and the Company does not
foresee any significant shortages.
12
<PAGE> 15
PATENTS, LICENSES AND TRADEMARKS
The Company's operations are not dependent to any significant extent upon
any single or related group of patents, licenses, franchises or concessions. The
Company's operations also are not dependent upon any single trademark, although
some trademarks are identified with a number of the Company's products and
services and are of importance in the sale and marketing of such products and
services. Some of the more important of the Company's trademarks are:
<TABLE>
<CAPTION>
Business Segment Trademark
---------------- ---------
<S> <C>
Air Conditioning Products TRANE(R)
AMERICAN STANDARD(R)
Plumbing Products AMERICAN STANDARD(R)
IDEAL STANDARD(R)
STANDARD(R)
PORCHER(R)
Automotive Products WABCO(R)
WABCO WESTINGHOUSE(R)
CLAYTON DEWANDRE
PERROT(R)
</TABLE>
The Company from time to time has granted patent licenses to, and has
licensed technology from, other parties.
RESEARCH AND PRODUCT DEVELOPMENT
The Company made expenditures of $160 million in 1996, $146 million in
1995 and $140 million in 1994 for research and product development and for
product engineering. The expenditures for research and product development only
were $81 million in 1996, $67 million in 1995 and $60 million in 1994 and were
incurred primarily by Automotive Products and Air Conditioning Products.
Automotive Products, which expended the largest amount, has conducted research
and development in recent years on advanced electronic braking systems,
heavy-duty disc brake systems, and additional electronic control systems for
commercial vehicles. Air Conditioning Products' research and development
expenditures were primarily related to alternative, environmentally-preferred
refrigerants, compressors, heat transfer surfaces, air flow technology,
acoustics and micro-electronic controls. Any amount spent on customer sponsored
research and development activities in these periods was insignificant.
REGULATIONS AND ENVIRONMENTAL MATTERS
The Company's U.S. operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the air, water and soil and establish standards for the
treatment, storage and disposal of solid and hazardous wastes. The Company
believes that it is in substantial compliance with such laws and regulations. A
number of the Company's plants are undertaking responsive actions to address
soil and groundwater issues. In addition, the Company is a party to a number of
remedial actions under various federal and state environmental laws and
regulations that impose liability on companies to clean up, or contribute to the
cost of cleaning up, sites at which hazardous wastes or materials were disposed
or released, including approximately 30 proceedings under the Comprehensive
Environmental Response, Compensation and Liability Act and similar state
statutes in which the Company has been named a potentially responsible party or
a third party by a potentially responsible party. Expenditures in 1994,
13
<PAGE> 16
1995 and 1996 to evaluate and remediate such sites were not material. On the
basis of the Company's historical experience and information currently
available, the Company believes that these environmental actions will not have a
material adverse effect on its financial condition, results of operations or
liquidity.
Additional sites may be identified for environmental remediation in the
future, including properties previously transferred by the Company and with
respect to which the Company may have contractual indemnification obligations.
The Company cannot estimate at this time the ultimate aggregate costs of all
remedial actions because of (a) uncertainties surrounding the nature and
application of environmental regulations, (b) the Company's lack of information
about additional sites at which it may be listed as a potentially responsible
party, (c) the level of clean-up that may be required at specific sites and
choices concerning the technologies to be applied in corrective actions, (d) the
number of contributors and the financial capacity of others to contribute to the
cost of remediation at specific sites and (e) the time periods over which
remediation may occur.
The Company's international operations are also subject to various
environmental statutes and regulations. Generally, these requirements tend to be
no more restrictive than those in effect in the United States. The Company
believes it is in substantial compliance with such existing domestic and foreign
environmental statutes and regulations.
The Company derived significant revenues in 1996 and prior years from
sales of air conditioning products using chlorofluorocarbons ("CFCs") and
hydrochloroflurocarbons ("HCFCs"). Use of CFCs, HCFCs and other ozone-depleting
chemicals is to be phased out over various periods of time under regulations
that will require use of substitute permitted refrigerants. Also, utilization of
new refrigerants will require replacement or modification of much of the
existing air conditioning equipment. The Company believes that these regulations
will have the effect of generating additional product sales and parts and
service revenues, as existing air conditioning equipment utilizing CFCs is
converted to operate on environmentally preferred refrigerants or replaced,
although such conversion or replacement is expected to occur only over a period
of years, and the Company is unable to estimate the magnitude or timing of such
additional conversion or replacements. The Company has been working closely with
refrigerant manufacturers that are developing refrigerant substitutes for CFCs
and HCFCs, so that the Company's products will be compatible with those
substitutes. Although the Company believes that its commercial products
currently in production will not require substantial modification to use
substitutes, residential and light commercial products produced by the Company
and its competitors may require modification for refrigerant substitutes. The
costs of introducing alternative refrigerants are expected to be reflected in
product pricing and accordingly are not expected to have a material adverse
impact on the Company.
Certain federal and state statutes, including the National Appliance
Energy Conservation Act of 1987, as amended, impose energy efficiency standards
for certain of the Company's unitary air conditioning products. Although the
Company has been able to meet or exceed such standards to date, stricter
standards in the future could require substantial research and development
expense and capital expenditures to maintain compliance.
The development, testing and distribution of medical products are subject
to extensive regulation including, in the United States, approvals by the FDA.
Moreover, the medical test market is competitive and many companies with such
products have substantially greater resources and experience than the Company.
There is no assurance the Company's products will be successfully developed or
marketed.
14
<PAGE> 17
EMPLOYEES
The Company employed approximately 44,000 people (excluding employees of
unconsolidated joint venture companies) at December 31, 1996. The Company has a
total of 18 labor union contracts in North America (covering approximately 8,500
employees), five of which expire in 1997 (covering approximately 371 employees)
and two of which expire in 1998 (covering approximately 2,300 employees). Two of
the contracts expiring in 1997 have already been successfully renegotiated.
There can be no assurance that the Company will successfully negotiate the
remaining labor contracts expiring during 1997 without work stoppages. However,
the Company does not anticipate any problems in renegotiating those contracts
that would materially affect its results of operations.
In 1994, 230 Plumbing Products employees went on strike for 64 days at the
Landsdowne (Toronto), Canada chinaware manufacturing plant. Other than this
strike, the Company has not experienced any other significant work stoppages in
North America in the last five years.
The Company also has a total of 40 labor contracts outside North America
(covering approximately 18,000 employees). In early 1996 there was a 5-week work
stoppage at the two chinaware manufacturing plants of the Philippines plumbing
products subsidiary, involving 700 employees, where the Company combined the two
facilities. Other than the Philippines work stoppage, the Company has not
experienced any significant work stoppage in the last five years outside North
America.
Although the Company believes relations with its employees are generally
satisfactory, there can be no assurance that the Company will not experience
significant work stoppages in the future or that its relations with employees
will continue to be satisfactory.
CUSTOMERS
The business of the Company taken as a whole is not dependent upon any
single customer or a few customers.
INTERNATIONAL OPERATIONS
The Company conducts significant non-U.S. operations through subsidiaries
in most of the major countries of Western Europe, Canada, Brazil, Mexico,
Central American countries, the PRC, Malaysia, the Philippines, South Korea,
Thailand, Taiwan, Australia and Egypt. In addition, the Company conducts
business in these and other countries through affiliated companies and
partnerships in which the Company owns 50% or less of the stock or partnership
interest.
Because the Company has manufacturing operations in 35 countries,
fluctuations in currency exchange rates may have a significant impact on its
financial statements. Such fluctuations have much less effect on local operating
results, however, because the Company for the most part sells its products
within the countries in which they are manufactured. The asset exposure of
foreign operations to the effects of exchange volatility has been partly offset
by the denomination in foreign currencies of a portion of the Company's
borrowings.
15
<PAGE> 18
ITEM 2. PROPERTIES
At December 31, 1996 the Company conducted its manufacturing activities
through 106 plants in 35 countries, of which the principal facilities are as
follows:
<TABLE>
<CAPTION>
BUSINESS
SEGMENT LOCATION MAJOR PRODUCTS MANUFACTURED AT LOCATION
------- -------- ---------------------------------------
<S> <C> <C>
Air Conditioning Clarksville, TN Commercial unitary air conditioning
Products Fort Smith, AK Commercial unitary air conditioning
La Crosse, WI Applied air conditioning systems
Lexington, KY Air handling products
Macon, GA Commercial air conditioning systems
Pueblo, CO Applied air conditioning systems
Rushville, IN Air handling products
Trenton, NJ Residential gas furnaces and air handlers
Tyler, TX Residential air conditioning
Waco, TX Water source heat pumps and air handling
products
Charmes, France Applied air conditioning systems
Epinal, France Unitary air conditioning systems and mini-splits
Mirecourt, France Applied and air handling products
Plumbing Products Salem, OH Enameled-steel fixtures and acrylic bathtubs
Tiffin, OH Vitreous china
Trenton, NJ Vitreous china
Toronto, Canada Vitreous china and enameled-steel fixtures
Hull, England Vitreous china and acrylic bathtubs
Middlewich, England Vitreous china
Dole, France Vitreous china and acrylic bathtubs
Neuss, Germany Vitreous china
Wittlich, Germany Brass plumbing fittings
Orcenico, Italy Vitreous china
Brescia, Italy Vitreous china
Mexico City, Mexico Vitreous china, water heaters
Monterrey, Mexico Brass plumbing fittings
Manila, Philippines Vitreous china
Seoul, South Korea Brass plumbing fittings
Bangkok, Thailand Vitreous china
Automotive Campinas, Brazil Braking equipment
Products Leeds, England Braking equipment
Claye-Souilly, France Braking equipment
Hanover, Germany Braking equipment
Mannheim, Germany Foundation brakes
</TABLE>
Except for the properties located in Mirecourt, France and Manila,
Philippines, all of the plants described above are owned by the Company or a
subsidiary. Through joint ventures, the Company participates in the operation of
(or is in the process of constructing) up to ten plants in the PRC, and operates
one plant in each of Indonesia and India. The Company considers that its
properties are generally in good condition, are well maintained, and are
generally suitable and adequate to carry on the Company's business.
16
<PAGE> 19
In 1996 several Air Conditioning Products' plants operated at or near
capacity and others operated moderately below capacity.
In 1996 Plumbing Products' plants worldwide operated at levels of
utilization which varied from country to country but overall were satisfactory.
Automotive Products' plants generally operated moderately below capacity
in 1996.
ITEM 3. LEGAL PROCEEDINGS
American Standard Inc. is the defendant in a lawsuit brought by Entech
Sales & Service, Inc., on behalf of itself and a class of contractors engaged in
the service and repair of commercial air conditioning equipment. The suit, filed
in March 1993 in the United States District Court for the Northern District of
Texas, alleges principally that the manner in which Air Conditioning Products
distributes repair service parts for its equipment violates the Federal
antitrust laws. On May 24, 1996, the district court granted summary judgment in
favor of American Standard Inc. with respect to the only claim certified as a
class action, alleging a price fixing conspiracy. With respect to Entech's
individual claims, American Standard Inc. and Entech have reached a settlement
agreement on terms that will not have a material effect on American Standard
Inc.
The Company received letters from Tyco International Ltd. ("Tyco") on
September 30, 1996 setting forth proposals for a possible acquisition by Tyco of
all the shares of the Company's common stock, in each case for a combination of
cash and Tyco common stock. The final letter included a proposed purchase price
of $50 per share. The Company's Board of Directors reviewed the Tyco proposals,
consulted with its legal counsel and financial advisors and concluded that the
Company's strategies already in place are working and the best way to increase
the Company's earnings and shareholder value is to focus on implementing these
strategies as an independent company. As a result, the Board of Directors
concluded that the Company would decline any interest in the proposals and Tyco
was so informed. There have been no discussions between the Company and Tyco
concerning any of the proposals and the Company contemplates none.
Two persons claiming to be shareholders of the Company and represented by
the same lawyers have filed separate class action and derivative lawsuits in the
Chancery Court of the State of Delaware against the Company, ASI Partners and
the directors of the Company alleging breeches of fiduciary duties in respect of
the rejection of the Tyco proposals and approval of the secondary offering of
Company common stock owned by Kelso ASI Partners L.P. ("ASI Partners") and the
repurchase by the Company of all shares owned by ASI Partners after the
secondary offering and the distribution by ASI Partners of shares to certain of
its partners (collectively, the "Stockholder Transactions"). The lawsuits seek
to cause the Company to evaluate alternatives to maximize value for the
Company's public shareholders, to enjoin the Stockholder Transactions and to
recover damages in an unspecified amount. A person claiming to be a holder of
certain public debt securities of American Standard Inc. has filed a class
action lawsuit in New York Supreme Court seeking to enjoin the Stockholder
Transactions or to require the Company to redeem such debt securities at the
election of the security holders. The Company believes that these lawsuits are
without merit and intends to contest them vigorously.
17
<PAGE> 20
For a discussion of German tax issues see Note 6 of Notes to
Consolidated Financial Statements incorporated by reference herein (see Item
14(a) of Part IV hereof). For a discussion of environmental issues see "Item
1. Business - General - Regulations and Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's stockholders during the
fourth quarter of 1996.
18
<PAGE> 21
EXECUTIVE OFFICERS OF THE REGISTRANT
In reliance on General Instruction G to Form 10-K, information on
executive officers of the Registrant is included in this Part I. The following
table sets forth certain information as of March 11, 1997 with respect to each
person who is an executive officer of the Company:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Emmanuel A. Kampouris 62 Chairman, President and Chief Executive Officer, and Director
Horst Hinrichs 64 Senior Vice President, Automotive Products, and Director
George H. Kerckhove 59 Senior Vice President, Plumbing Products, and Director
Giancarlo Aimetti 60 Vice President, Automotive Products, Austrian Group
Fred A. Allardyce 55 Vice President and Chief Financial Officer
Alexander A. Apostolopoulos 54 Vice President and Group Executive, Plumbing Products,
Americas International
Thomas S. Battaglia 54 Vice President and Treasurer
Gary A. Brogoch 46 Vice President and Group Executive, Plumbing Products,
Asia Pacific
Michael C.R. Broughton 56 Vice President, Automotive Products, United Kingdom
Roberto Canizares M. 47 Vice President, Air Conditioning Products, Asia Pacific Region
Wilfried Delker 56 Vice President and Group Executive, Plumbing Products,
Worldwide Fittings
Adrian B. Deshotel 51 Vice President, Human Resources
Peter Enss 52 Vice President, Automotive Products, Germany
Luigi Gandini 58 Vice President, Special Projects
Daniel Hilger 56 Vice President, Air Conditioning Products,
Middle East and Africa Region
Richard A. Kalaher 56 Vice President, General Counsel and Secretary
W. Craig Kissel 46 Vice President and Group Executive, Air Conditioning Products,
Unitary Group
William A. Klug 64 Vice President and Group Executive, Air Conditioning Products,
International
Jean-Claude Montauze 50 Vice President, Automotive Products, France
Janet George Murnick 53 Vice President, Alimenterics, Medical Systems Group
G. Eric Nutter 61 Vice President and Group Executive, Plumbing Products, U.S.
Raymond D. Pipes 47 Vice President, Corporate Development
Bruce R. Schiller 52 Vice President, Air Conditioning Products,
Compressor Business
James H. Schultz 48 Vice President and Group Executive, Air Conditioning Products,
North American Commercial Group
G. Ronald Simon 55 Vice President and Controller
Benson I. Stein 59 Vice President, General Auditor
Wolfgang Voss 50 Vice President and Group Executive, Plumbing Products, Europe
Robert M. Wellbrock 50 Vice President, Taxes
</TABLE>
Each officer of the Company is elected by the Board of Directors to hold
office until the first Board meeting after the Annual Meeting of Stockholders
next succeeding his election.
None of the Company's officers has any family relationship with any
director or other officer. "Family relationship" for this purpose means any
relationship by blood, marriage or adoption, not more remote than first cousin.
Set forth below is the principal occupation of each of the executive
officers named above during the past five years (except as noted, all positions
are with the Company and American Standard Inc.).
19
<PAGE> 22
Mr. Kampouris was elected Chairman in December 1993 and President and
Chief Executive Officer in February 1989. He is also a director of Daido
Hoxan Inc. Mr. Kampouris has served as a director of the Company since July
1988.
Mr. Hinrichs was elected Senior Vice President, Automotive Products,
in December 1990. Mr. Hinrichs has served as a director of the Company
since March 1991.
Mr. Kerckhove was elected Senior Vice President, Plumbing Products, in
June 1990. Mr. Kerckhove has served as a director of the Company since
September 1990.
Mr. Aimetti was elected Vice President, Automotive Products, Austrian
Group, in January 1997. Prior thereto he served as Business Leader of the
Austrian Group from 1995 to 1996, and has been Managing Director and General
Manager of WABCO Automotive Company in Italy since 1979.
Mr. Allardyce was elected Vice President and Chief Financial Officer in
January 1992.
Mr. Apostolopoulos was elected Vice President and Group Executive,
Plumbing Products, Americas International, in December 1990.
Mr. Battaglia was elected Vice President and Treasurer in September
1991.
Mr. Brogoch was elected Vice President in December 1994, and has served as
Group Executive of the Asia Pacific Plumbing Group since the consolidation of
the Far East and PRC Plumbing Groups in February 1997. Prior thereto he was
Group executive of the PRC from December 1994 until February 1997. He served as
Vice President of Plumbing Products' operations in the PRC from August 1993
until December 1994 and previously served as Vice President of Finance and
Planning, European Plumbing Products from August 1991 until August 1993.
Mr. Broughton was elected Vice President, Automotive Products, United
Kingdom, in January 1997. Prior thereto he served as Managing Director (Business
Leader) of that Group from May 1995 to December 1996, as Process Owner, Order
Fulfillment from 1993 to May 1995, and from July 1988 to 1993 as Director of
Manufacturing of the WABCO Automotive facility in Portsmouth, England.
Mr. Canizares was elected Vice President, Air Conditioning Products'
Asia Pacific Region, in December 1990.
Mr. Delker was elected Vice President and Group Executive, Plumbing
Products, Worldwide Fittings, in April 1990.
Mr. Deshotel was elected Vice President, Human Resources, in January
1992.
Mr. Enss was elected Vice President, Automotive Products in Germany, in
July 1995. Prior thereto he served as Vice President, Business Development, and
Group Executive of the WABCO Austrian group of companies from January 1994 to
June 1995 and in various executive capacities in the WABCO Automotive Products
Group headquarters in Brussels from January 1991 to December 1993.
Mr. Gandini has served as Vice President, Special Projects since
October 1995, having been elected Vice President and Group Executive,
European Plumbing Products, in July 1990.
Mr. Hilger was elected Vice President, Air Conditioning Products,
Middle East and Africa Region, in June 1988.
20
<PAGE> 23
Mr. Kalaher was elected Vice President, General Counsel and Secretary in
March 1995, having served as Acting General Counsel and Acting Secretary since
joining the Company in February 1994. Prior thereto, he was Vice President and
General Counsel of AMAX Inc. from 1991 to 1994.
Mr. Kissel was elected Vice President in charge of Air Conditioning
Products' Unitary Products Group in January 1992, becoming Group Executive in
March 1994.
Mr. Klug was elected Vice President in 1985 and has been Group Executive
in charge of Air Conditioning Products' Trane International since December 1993.
He served as Group Executive, Unitary Products Group, from April 1990 until
December 1993.
Mr. Montauze was elected Vice President, Automotive Products in France, in
October 1994. He served as Vice President of Finance and Controller of
Automotive Products at the Brussels headquarters from September 1989 until
September 1994.
Dr. Murnick was elected Vice President in May 1996 and has been President
of Alimenterics Inc., a medical diagnostic subsidiary of the Company, since
1995, having served as its Vice President from 1992 until 1995. She founded
Diagnostics and Devices, Inc., a medical technology development company, in 1983
and has served as its President since then.
Mr. Nutter was elected Vice President and Group Executive, U.S. Plumbing
Products, in May 1995. Prior thereto he served as Vice President, Automotive
Products in the United Kingdom from January 1992 until April 1995 and as Vice
President and General Manager of WABCO Automotive U.K. Limited, the United
Kingdom automotive subsidiary of the Company from March 1991 until December
1991.
Mr. Pipes has served as Vice President Corporate Development since
February 1997. Prior thereto he was elected as Vice President and Group
Executive for the Far East Region of Plumbing Products in May 1992 and served in
that capacity until its consolidation with the PRC Plumbing Group in February
1997 and prior thereto served as Managing Director of American Standard Inc.'s
Philippine subsidiary from May 1990 until April 1992.
Mr. Schiller was elected Vice President, Compressor Business (Air
Conditioning Products) in March 1994. Prior thereto he served as General
Manager, Compressor Business Group, from May 1993 to February 1994 and Manager
and then General Manager of the Company's Tyler, Texas, facility from March 1986
to April 1993.
Mr. Schultz was elected Vice President and Group Executive, North
American Commercial Group of Air Conditioning Products, in 1987.
Mr. Simon was elected Vice President and Controller in January 1992.
Mr. Stein was elected Vice President, General Auditor, in March 1994;
from December 1986 to February 1994 he was the Company's General Auditor.
Mr. Voss was elected Vice President and Group Executive, European Plumbing
Products in July 1995, to succeed Mr. Gandini in October 1995. Prior thereto, he
served as Process Owner, Order Fulfillment from January 1994 to June 1995, and
as Works Manager from January 1991 to December 1993, of the WABCO Automotive
company in Germany.
Mr. Wellbrock was elected Vice President, Taxes, effective January 1,
1994. Prior thereto he served as Director of Taxes from 1988 through 1993.
21
<PAGE> 24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of the Company is listed on the New York Stock Exchange,
Inc. (the "Exchange"). The common stock was first traded on the Exchange on
February 3, 1995 concurrent with the underwritten initial public offering of
shares of the Company's common stock at an initial price to the public of $20.00
per share (the "Offering"). Prior to the Offering there was no established
public trading market for the Company's shares.
In January 1995 the Company adopted a Restated Certificate of
Incorporation, Amended Bylaws and a Stockholder Rights Agreement. The Restated
Certificate of Incorporation authorizes the Company to issue up to 200,000,000
shares of common stock, par value $.01 per share, and 2,000,000 shares of
preferred stock, par value $.01 per share, of which the Board of Directors
designated 900,000 shares as a new series of Junior Participating Cumulative
Preferred Stock. Each outstanding share of common stock has associated with it
one right to purchase a specified amount of Junior Participating Cumulative
Preferred Stock at a stipulated price in certain circumstances relating to
changes in ownership of the common stock of the Company.
The number of holders of record of the common stock of the Company as of
March 11, 1997, was 1,033.
No dividends were declared on the Company's common stock in 1995 or 1996.
The Company has no separate operations and its ability to pay dividends or
repurchase its common stock is dependent entirely upon the extent to which it
receives dividends or other funds from American Standard Inc. The terms of the
Company's 1997 Credit Agreement and certain indentures governing publicly-issued
debt securities of American Standard Inc. restrict the payment of dividends and
other extensions of funds by American Standard Inc. to the Company.
Set forth below are the high and low sales prices for shares of the
Company's common stock in 1995 from February 3, 1995, the date of the Offering,
through the end of the first quarter of 1995 and for each full quarterly period
thereafter in 1995 and 1996.
<TABLE>
<CAPTION>
1995: High Low
----- ---- ---
<S> <C> <C>
First quarter $ 25 $ 19-5/8
Second quarter $ 28-1/4 $ 24-1/4
Third quarter $ 32 $ 26
Fourth quarter $ 31-7/8 $ 26-1/4
1996:
-----
First quarter $ 31-3/8 $ 25-1/2
Second quarter $ 33-3/8 $ 26-1/2
Third quarter $ 35-1/4 $ 28-1/8
Fourth quarter $ 39-3/4 $ 34-1/4
</TABLE>
22
<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales $ 5,805 $ 5,221 $ 4,457 $ 3,830 $ 3,792
Income (loss) before extraordinary
item and cumulative effect of
change in accounting method(a)(b) $ (47) $ 142 $ (77) $ (117) $ (57)
============ ============ ============ ============ ============
Per Common Share:
Income (loss) before extraordinary
item and cumulative effect of
change in accounting method (a) $ (.60) $ 1.90 $ (1.29) $ (2.11) $ (1.24)
============ ============ ============ ============ ============
Average number of outstanding
common shares 77,986,511 74,671,830 59,933,435 59,313,073 58,636,118
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets $ 3,520 $ 3,520 $ 3,156 $ 2,987 $ 3,126
Total debt 1,923 2,083 2,364 2,336 2,145
-- -- -- -- 133
Exchangeable preferred stock
Stockholders' deficit (380) (390) (798) (723) (449)
</TABLE>
(a) Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, resulting in a
non-cash charge of $235 million, or $3.02 per share.
(b) Retirements of debt in connection with the proceeds of the initial public
offering in 1995, an October 1994 borrowing and a 1993 refinancing
resulted in extraordinary charges of $30 million, $9 million and $92
million in 1995, 1994 and 1993, respectively, (including call premiums,
the write-off of deferred debt issuance costs, and in 1993 the loss on
cancellation of foreign currency swap contracts) on which there were no
tax benefits (see Notes 6 and 9 of Notes to Consolidated Financial
Statements included in the Company's 1996 Annual Report to Stockholders
and incorporated herein by reference).
23
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of the financial condition and
results of operations of the Company is set forth on pages 15 through 23 of the
Company's 1996 Annual Report to Stockholders and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference from the Company's 1996 Annual Report to
Stockholders are the financial statements and related information listed under
the heading "1. Financial Statements" in the Index to Financial Statements and
Financial Statement Schedules on page 27 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
24
<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for information regarding the Company's executive officers, the
information called for by this Item is incorporated in this report by reference
to the Company's definitive Proxy Statement dated March 26, 1997: under the
headings: "Stock Ownership" and "1. Election of Directors", except for
information not deemed to be "soliciting material" or "filed" with the SEC,
information subject to Regulations 14A or 14C under the Exchange Act or
information subject to the liabilities of Section 18 of the Exchange Act.
For information concerning the executive officers of the Company, see
"Executive Officers of the Registrant" under Part I of this report.
None of the Company's directors or officers has any family relationship
with any other director or officer. ("Family relationship" for this purpose
means any relationship by blood, marriage or adoption, not more remote than
first cousin.)
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation and related matters is set
forth in the Company's definitive Proxy Statement dated March 26, 1996 as
follows: under the section entitled "Directors' Fees and Other Arrangements" on
page 7 thereof, under the heading entitled "Executive Compensation" on pages 9
through 13 thereof, under the heading entitled "Compensation Committee
Interlocks and Insider Participation" on page 17 and under the heading entitled
"Certain Relationships and Related Party Transactions" on pages 17 through 19
thereof, and is incorporated herein by reference except for the sections
entitled "Management Development and Nominating Committee Report on Compensation
of Executive Officers of the Company" and "Performance Graph" appearing on pages
14 through 17. except for information not deemed to be "soliciting material" or
"filed" with the SEC, information subject to Regulations 14A or 14C under the
Exchange Act or information subject to the liabilities of Section 18 of the
Exchange Act.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning shares of common stock of the Company beneficially
owned by management and others is set forth under the heading entitled "Stock
Ownership" on pages 3 and 4 in the Company's definitive Proxy Statement dated
March 26, 1997 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated in this report by
reference to the Company's definitive Proxy Statement dated March 26, 1997 under
the section entitled "Certain Relationships and Related Party Transactions",
except for information not deemed to be "soliciting material" or "filed" with
the SEC, information subject to Regulations 14A or 14C under the Exchange Act or
information subject to the liabilities of Section 18 of the Exchange Act.
25
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. Financial statements and financial statement schedules
The financial statements and financial statement schedules are
listed in the accompanying index to financial statements on page
27of this annual report on Form 10-K. The financial statements
indicated on the index appearing on page 27 hereof are incorporated
herein by reference.
3. Exhibits
The exhibits to this Report are listed on the accompanying index to
exhibits and are incorporated herein by reference or are filed as
part of this annual report on Form 10-K.
(b) Reports on Form 8-K for the quarter ended December 31, 1996.
The Company filed no current reports on Form 8-K during the fourth
quarter ended December 31, 1996.
26
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN STANDARD COMPANIES INC.
By: /s/ EMMANUEL A. KAMPOURIS
-----------------------------
(Emmanuel A. Kampouris)
Chairman, President and Chief Executive Officer
March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 26, 1997:
<TABLE>
<S> <C>
/s/ Emmanuel A. Kampouris
- ------------------------------
(Emmanuel A. Kampouris) Chairman, President and Chief Executive
Officer; Director (Principal Executive Officer)
/s/ FRED A. ALLARDYCE
- ------------------------------
(Fred A. Allardyce) Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ G. RONALD SIMON
- ------------------------------
(G. Ronald Simon) Vice President and Controller
(Principal Accounting Officer)
/s/ STEVEN E. ANDERSON
- ------------------------------
(Steven E. Anderson) Director
/s/ HORST HINRICHS
- ------------------------------
(Horst Hinrichs) Director
/s/ GEORGE H. KERCKHOVE
- ------------------------------
(George H. Kerckhove) Director
/s/ SHIGERU MIZUSHIMA
- ------------------------------
(Shigeru Mizushima) Director
/s/ FRANK T. NICKELL
- ------------------------------
(Frank T. Nickell) Director
/s/ ROGER W. PARSONS
- ------------------------------
(Roger W. Parsons) Director
/s/ J. DANFORTH QUAYLE
- ------------------------------
(J. Danforth Quayle) Director
/s/ DAVID M. RODERICK
- ------------------------------
(David M. Roderick) Director
/s/ JOHN RUTLEDGE
- ------------------------------
(John Rutledge) Director
/s/ JOSEPH S. SCHUCHERT
- ------------------------------
(Joseph S. Schuchert) Director
</TABLE>
27
<PAGE> 30
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
COVERED BY
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
<TABLE>
<CAPTION>
--------------
1996
ANNUAL REPORT
TO
STOCKHOLDERS
(PAGES)
--------------
<S> <C>
1. Financial Statements incorporated by reference from
the Company's 1996 Annual Report to Stockholders)
Consolidated Balance Sheet at
December 31, 1996, and 1995 27
Years ended December 31, 1996, 1995, and 1994:
Consolidated Statement of Operations 26
Consolidated Statement of Cash Flows 28
Consolidated Statement of Stockholders' Deficit 29
Notes to Financial Statements 30-43
Segment Data 14 and 43
Quarterly Data (Unaudited) 44
Report of Independent Auditors 25
--------------
FORM 10-K
(PAGES)
--------------
2. Financial statement schedules, years ended
December 31, 1996, 1995, and 1994
I Condensed Financial Information of Registrant 29-32
II Valuation and Qualifying Accounts 33
</TABLE>
All other schedules have been omitted because the information is not applicable
or is not material or because the information required is included in the
financial statements or the notes thereto.
28
<PAGE> 31
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of American Standard Companies Inc. of our report dated February 13, 1997
included in the 1996 Annual Report to Stockholders of American Standard
Companies Inc.
Our audits also included the financial statement schedules of American Standard
Companies Inc. listed in Item 14(a). These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
New York, New York
March 26, 1997
29
<PAGE> 32
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS (PARENT COMPANY SEPARATELY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest income $ 747 $ 450 $ 219
Interest expense 747 450 219
Equity in net loss of subsidiary (46,718) 111,655 (86,421)
-------- -------- --------
Net loss $(46,718) $111,655 $(86,421)
======== ======== ========
</TABLE>
See notes to financial statements
30
<PAGE> 33
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT - (CONTINUED)
BALANCE SHEET (PARENT COMPANY SEPARATELY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
ASSETS
1996 1995
--------- ---------
<S> <C> <C>
Investment in subsidiary $(373,246) $(378,924)
Loan receivable from subsidiary 10,000 4,823
LIABILITIES
Loan payable to subsidiary 395 629
Stock repurchase obligation (Note C) 16,740 15,333
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value, 200,000,000 shares
authorized;shares issued and outstanding,
78,572,638 in 1996; 76,733,010 in 1995 786 767
Capital surplus 563,873 509,218
Subscriptions receivable (395) (629)
Accumulated deficit (771,487) (724,769)
Foreign currency translation effects (173,158) (174,650)
Minimum pension liability adjustment
-- --
--------- ---------
Total stockholders' deficit (380,381) (390,063)
--------- ---------
$(363,246) $(374,101)
========= =========
</TABLE>
See notes to financial statements.
31
<PAGE> 34
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS (PARENT COMPANY SEPARATELY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(46,718) $ 111,655 $(86,421)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Equity in net loss (income) of subsidiary 46,718 (111,655) 86,421
-------- --------- --------
Net cash flow from operating activities
0 0 0
-------- --------- --------
Cash provided (used) by investing activities:
Investment in subsidiary (19,400) (279,983) (3,976)
Loan to subsidiary (5,177) (4,823) --
Purchase of common stock by subsidiary 10,000 10,989 16,927
-------- --------- --------
Net cash provided by investing activities (14,577) (273,817) 12,951
-------- --------- --------
Cash provided (used) by financing activities:
Proceeds from initial public offering of common stock -- 280,535 --
Other issuances of common stock 24,577 4,271 3,976
Common stock repurchases (10,000) (10,989) (16,927)
Repayments on subscriptions receivable 234 1,011 786
Repayment of loan from subsidiary (234) (1,011) (786)
-------- --------- --------
Net cash used by financing activities 14,577 273,817 (12,951)
-------- --------- --------
Net change in cash and cash equivalents $ 0 $ 0 $ 0
======== ========= ========
</TABLE>
See notes to financial statements.
32
<PAGE> 35
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
ON REGISTRANT -- (CONTINUED)
NOTES TO FINANCIAL STATEMENTS (PARENT COMPANY SEPARATELY)
(A) The notes to the consolidated financial statements of American Standard
Companies Inc. (the "Parent Company"), are an integral part of these
condensed financial statements.
(B) The Parent Company was organized by Kelso & Company, L.P. ("Kelso"), a
private merchant banking firm, to participate in the acquisition of
American Standard Inc. (the "Acquisition") in 1988. American Standard
Inc.'s common stock is owned solely by the Parent Company. The Parent
Company has no other investments or operations.
(C) The Parent Company has sold its common stock to management employees in
connection with the Acquisition and issued common stock under various
employee benefit and incentive plans including the ESOP. As no public
market existed for the stock prior to the initial public offering in the
first quarter of 1995 (see Note D), the Parent Company, to provide
liquidity to employees who have terminated employment, has made purchases
of such employees' stock. Subsequent to December 2, 1994 the Parent
Company is no longer obligated to make such purchases. Purchases through
December 31, 1994, were based upon fair market value appraisals obtained
in connection with the ESOP. The amount paid on such stock purchases is
subject to an annual limitation contained in American Standard Inc.'s
lending arrangements and debt instruments (the "Annual Limitation"). As
the amount owed to terminated employees has exceeded the Annual
Limitation, a liability for the unpaid balance has been recorded on the
financial statements of the Parent Company with a concomitant reduction in
common stock and capital surplus accounts.
(D) In the first quarter of 1995 the Parent Company sold 15,112,300 shares of
its common stock in an initial public offering at an initial price to the
public of $20 per share. This offering yielded net proceeds of
approximately $281 million (including proceeds from the exercised portion
of the underwriters' over-allotment option and after deducting
underwriting discounts and expenses), which were transferred to American
Standard Inc. and used to reduce its indebtedness. Of the total net
proceeds transferred, $269 million was contributed to the capital of
American Standard Inc. and $12 million was advanced under an intercompany
demand note.
(E) In the first quarter of 1997, the Parent Company completed a secondary
offering of 12,429,548 shares of its common stock owned by Kelso ASI
Partners, L.P., ("ASI Partners") an affiliate of Kelso and the Parent
Company's largest shareholder as of December 31, 1996. In conjunction with
the secondary offering, the Parent Company repurchased 4,628,755 shares of
its common stock from ASI Partners for $208 million with funds borrowed by
American Standard Inc. under American Standard Inc.'s 1997 Credit
Agreement and loaned to the Parent Company under a non-interest-bearing
intercompany demand note.
33
<PAGE> 36
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
DESCRIPTION FOREIGN
BALANCE ADDITIONS CURRENCY BALANCE
BEGINNING CHARGED TO OTHER TRANSLATION END OF
OF PERIOD INCOME DEDUCTIONS CHANGES EFFECTS PERIOD
<S> <C> <C> <C> <C> <C> <C>
1996:
Reserve deducted from assets:
Allowance for doubtful
accounts receivable $ 27,330 $11,225 $(10,158)(A) $ 304 $ (407) $ 28,294
======== ======= ======== ======== ======== ========
Reserve for
post-retirement benefits $482,398 60,730 (40,960)(B) (10,204)(C) (18,735) 473,229
======== ======= ======== ======== ======== ========
1995:
Reserve deducted from assets:
Allowance for doubtful
accounts receivable $ 19,569 $10,811 $ (6,064)(A) $ 2,662 $ 352 $ 27,330
======== ======= ======== ======== ======== ========
Reserve for post-retirement
benefits $437,708 $52,190 $(21,808)(B) $ (5,761)(D) $ 20,069 $482,398
======== ======= ======== ======== ======== ========
1994:
Reserve deducted from assets:
Allowance for doubtful
accounts receivable $ 15,666 $10,208 $ (6,868)(A) $ 533 $ 30 $ 19,569
======== ======= ======== ======== ======== ========
Reserve for post-retirement
benefits $387,038 $44,352 $(23,062)(B) $ 3,188(E) $ 26,192 $437,708
======== ======= ======== ======== ======== ========
</TABLE>
The reserve for postretirement benefits excludes the activity for currently
funded U.S. pension plans.
(A) Accounts charged off.
(B) Payments made during the year.
(C) Includes $10 million reduction in minimum pension liability.
(D) Includes $6 million reduction in minimum pension liability.
(E) Includes $5 million from acquisition of new business offset by $3 million
reduction in minimum pension liability.
34
<PAGE> 37
AMERICAN STANDARD COMPANIES INC.
INDEX TO EXHIBITS
(Item 14(a)3 - Exhibits Required by Item 601
of Regulation S-K and Additional Exhibits)
(The Commission File Number of American Standard Companies Inc. (formerly ASI
Holding Corporation), the Registrant (sometimes hereinafter referred to as
"Holding"), and for all Exhibits incorporated by reference, is 1-11415, except
those Exhibits incorporated by reference in filings made by American Standard
Inc. (the "Company") the Commission File Number of which is 33-64450. Prior to
filing its Registration Statement on Form S-2 on November 10, 1994, Holding's
Commission File Number was 33-23070.)
(3) (i) Restated Certificate of Incorporation of Holding; previously
filed as Exhibit 3(i) in Amendment No. 4 to Registration
Statement No. 33-56409 under the Securities Act of 1933, as
amended, filed January 31, 1995, and herein incorporated by
reference.
(ii) Amended By-laws of Holding, as amended February 24, 1997,
effective May 1, 1997.
(4) (i) Form of Common Stock Certificate; previously filed as Exhibit
4(i) in Amendment No. 3 to Registration Statement No. 33-56409
under the Securities Act of 1933, as amended, filed January 5,
1995, and herein incorporated by reference.
(ii) Indenture, dated as of November 1, 1986, between the Company
and Manufacturers Hanover Trust Company, Trustee, including
the form of 9-1/4% Sinking Fund Debenture Due 2016 issued
pursuant thereto on December 9, 1986, in the aggregate
principal amount of $150,000,000; previously filed as Exhibit
4(iii) to the Company's Form 10-K for the fiscal year ended
December 31, 1986, and herein incorporated by reference.
(iii) Instrument of Resignation, Appointment and Acceptance, dated
as of April 25, 1988 among the Company, Manufacturers Hanover
Trust Company (the "Resigning Trustee") and Wilmington Trust
Company (the "Successor Trustee") relating to resignation of
the Resigning Trustee and appointment of the Successor
Trustee, under the Indenture referred to in Exhibit (4)(ii)
above; previously filed as Exhibit (4)(ii) to Registration
Statement No. 33-64450 of the Company under the Securities Act
of 1933, as amended, and herein incorporated by reference.
(iv) Indenture, dated as of May 15, 1992, between the Company and
First Trust National Association, Trustee, relating to the
Company's 10-7/8% Senior Notes due 1999, in the aggregate
principal amount of $ 150,000,000; previously filed as Exhibit
(4)(i) to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1992, and herein incorporated by
reference.
(v) Form of 10-7/8% Senior Note due 1999 included as Exhibit A to
the Indenture described in
<PAGE> 38
(4)(iv) above.
(vi) Indenture dated as of May 15, 1992, between the Company and
First Trust National Association, Trustee, relating to the
Company's 11-3/8% Senior Debentures due 2004, in the aggregate
principal amount of $250,000,000; previously filed as Exhibit
(4)(iii) to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1992, and herein incorporated by
reference.
(vii) Form of 11-3/8% Senior Debentures due 2004 included as Exhibit
A to the Indenture described in (4)(vi) above.
(viii) Form of Indenture, dated as of June 1, 1993, between the
Company and United States Trust Company of New York, as
Trustee, relating to the Company's 9-7/8% Senior Subordinated
Notes Due 2001; previously filed as Exhibit (4)(xxxi) to
Amendment No. 1 to Registration Statement No. 33-61130 of the
Company under the Securities Act of 1933, as amended, and
herein incorporated by reference.
(ix) Form of Note evidencing the 9-7/8% Senior Subordinated Notes
Due 2001 included as Exhibit A to the Form of Indenture
referred to in (4)(viii) above.
(x) Form of Indenture, dated as of June 1, 1993, between the
Company and United States Trust Company of New York, as
Trustee, relating to the Company's 10-1/2% Senior Subordinated
Discount Debentures Due 2005; previously filed as Exhibit
(4)(xxxiii) to Amendment No. 1 to Registration Statement No.
33-61130 of the Company under the Securities Act of 1933, as
amended, and herein incorporated by reference.
(xi) Form of Debenture evidencing the 10-1/2% Senior Subordinated
Discount debentures Due 2005 included as Exhibit A to the Form
of Indenture referred to in (4)(x) above.
(xii) Amended and Restated Credit Agreement, dated as of January 31,
1997, among Holding, the Company, certain subsidiaries of the
Company and the financial institutions listed therein, The
Chase Manhattan Bank, as Administrative Agent; Citibank, N.
A., as Documentation Agent; The Bank of Nova Scotia and
NationsBank, N. A., as Co-Syndication Agents; Bankers Trust
Company, Deutsche Bank AG, The Industrial Bank of Japan Trust
Company, The Sanwa Bank Limited, New York Branch and The
Sumitomo Bank, Ltd., as Senior Managing Agents; and The Bank
of New York, Banque Paribas, CIBC Inc., CIBC Wood Gundy plc,
Compagnie Financiere de CIC et de L'Union Europeenne, Credit
Lyonnais, New York Branch, Fleet National Bank, The Long Tem
Credit Bank of Japan, Limited and The Toronto-Dominion Bank,
as Managing Agents; previously filed as Exhibit (4)(xviii) to
Amendment No. 2 to Registration Statement No. 333-18015 under
the Securities Act of 1933, as amended, filed February 5,
1997, and herein incorporated by reference.
(xiii) Rights Agreement, dated as of January 5, 1995, between Holding
and Citibank N.A. as Rights Agent; previously filed as Exhibit
(4)(xxv) to Holding's Form 10-K for the fiscal
<PAGE> 39
year ended December 31, 1994, and herein incorporated by
reference.
(10)* (i) Description of The American Standard Companies Inc. Employee
Stock Purchase Plan, incorporated by reference from the
Company's definitive proxy statement dated March 28, 1997.
(ii) American Standard Inc. Long-Term Incentive Compensation Plan,
as amended and restated on December 5, 1996; incorporated
herein by reference to Exhibit (10)(i) of Company's Form 10-K
for the fiscal year ended December 31, 1996.
(iii) Trust Agreement for American Standard Inc. Long-Term Incentive
Compensation Plan and American Standard Companies Inc.
Supplemental Incentive Compensation Plan, as amended and
restated on December 5, 1996; incorporated herein by reference
to Exhibit (10)(ii) of Company's Form 10-K for the fiscal
year ended December 31, 1996.
(iv) American Standard Inc. Annual Incentive Plan, as amended and
restated on December 5, 1996; incorporated herein by reference
to Exhibit (10)(iii) of Company's Form 10-K for the fiscal
year ended December 31, 1996.
(v) American Standard Inc. Executive Supplemental Retirement
Benefit Program, as restated to include all amendments through
July 6, 1995; incorporated herein by reference to Exhibit
(10)(iv) of Company's Form 10-K for the fiscal year ended
December 31, 1995.
(vi) American Standard Inc. Supplemental Compensation Plan for
Outside Directors, as amended through February 3, 1995;
previously filed as Exhibit (10)(xii) to the Company's Form
10-K for the fiscal year ended December 31, 1994, and herein
incorporated by reference.
(vii) ASI Holding Corporation 1989 Stock Purchase Loan Program;
previously filed as Exhibit (10)(i) to Holding's Form 10-Q
for the quarter ended September 30, 1989, and herein
incorporated by reference.
(viii) American Standard Companies Inc. Corporate Officer Severance
Plan, as amended and restated on December 5, 1996.
(ix) Estate Preservation Plan, adopted by Company in December,
1990; previously filed as Exhibit (10)(xx) to the Company's
Form 10-K for the fiscal year ended December 31, 1990, and
herein incorporated by reference.
(x) Amendment adopted in March 1993 to Estate Preservation Plan
referred to in (10)(ix) above; previously filed as Exhibit
(10)(xvii) to the Company's Form 10-K for the fiscal year
ended December 31, 1993 and herein incorporated by reference.
* Items in this section 10 consist of management contracts or compensatory
plans or arrangements with the exception of (10)(xv) and (xvi).
<PAGE> 40
(xi) Summary of terms of Unfunded Deferred Compensation Plan
adopted December 2, 1993; previously filed as Exhibit
(10)(xviii) to the Company's Form 10-K for the fiscal year
ended December 31, 1993 and herein incorporated by reference.
(xii) American Standard Companies Inc. Stock Incentive Plan, as
amended and restated on December 5, 1996.
(xiii) American Standard Companies Inc. and Subsidiaries 1996-1998
Supplemental Incentive Compensation Plan, as amended and
restated on December 5, 1996.
(xiv) Form of Indemnification Agreement; previously filed as Exhibit
(10)(xxi) in Amendment No. 3 to Registration Statement No.
33-56409 under the Securities Act of 1933, as amended, filed
January 5, 1995, and herein incorporated by reference.
(xv) Stock Disposition Agreement, dated as of December 16, 1996,
among Holding, Kelso & Company, L. P. and Kelso ASI Partners,
L. P.; previously filed as Exhibit (10)(i) to Registration
Statement No. 333-18015 under the Securities Act of 1933, as
amended, filed December 17, 1996, and herein incorporated by
reference.
(xvi) Form of Warrant Agreement between Holding and Citibank, N. A.
as Warrant Agent, included as Annex A to the Stock Disposition
Agreement described in (10)(xv) above; previously filed as
Exhibit (10)(ii) to Registration Statement No. 333-18015
under the Securities Act of 1933, as amended, filed December
17, 1996, and herein incorporated by reference.
(13) 1996 Annual Report to Stockholders. (Only those portions
specifically incorporated by reference are filed; no other
portions of the Annual Report are to be deemed filed.)
(21) Listing of Holding's subsidiaries.
(27) Financial Data Schedule.
<PAGE> 1
EXHIBIT 3(ii)
AMERICAN STANDARD COMPANIES INC.
AMENDED BY-LAWS
As Adopted on January 4, 1995,
as Amended on December 5, 1996
and February 24, 1997 (effective May 1, 1997)
<PAGE> 2
AMERICAN STANDARD COMPANIES INC.
AMENDED BY-LAWS
TABLE OF CONTENTS
PAGE
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I
STOCKHOLDERS............................................ 1
Section 1.1. Annual Meetings.............................................. 1
Section 1.2. Special Meetings............................................. 1
Section 1.3. Notice of Meetings; Waiver................................... 2
Section 1.4. Quorum....................................................... 2
Section 1.5. Voting....................................................... 2
Section 1.6. Voting by Ballot............................................. 3
Section 1.7. Adjournment.................................................. 3
Section 1.8. Proxies...................................................... 3
Section 1.9. Organization; Procedure...................................... 4
Section 1.10. Stockholder Proposals and Nominations
of Directors.............................................. 4
Section 1.11. Inspectors of Elections...................................... 5
Section 1.12. Opening and Closing of Polls.............................. 6
Section 1.13. Consent of Stockholders in
Lieu of Meeting........................................... 7
ARTICLE II
BOARD OF DIRECTORS....................................... 8
Section 2.1. General Powers............................................... 8
Section 2.2. Number and Term of Office.................................... 8
Section 2.3. Election of Directors........................................ 8
Section 2.4. Annual and Regular Meetings.................................. 9
Section 2.5. Special Meetings; Notice..................................... 9
Section 2.6. Quorum; Voting............................................... 10
Section 2.7. Adjournment.................................................. 10
Section 2.8. Action Without a Meeting..................................... 10
Section 2.9. Organization................................................. 10
Section 2.10. Regulations; Manner of Acting................................ 10
Section 2.11. Action by Telephonic Communications.......................... 10
Section 2.12. Resignations................................................. 11
Section 2.13. Removal of Directors......................................... 11
Section 2.14. Vacancies and Newly Created
Directorships............................................. 11
Section 2.15. Compensation................................................. 12
Section 2.16. Reliance on Accounts and Reports, etc........................ 12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES.. 12
Section 3.1. How Constituted............................................. 12
Section 3.2. Powers...................................................... 13
Section 3.3. Proceedings................................................. 14
Section 3.4. Quorum and Manner of Acting................................. 14
Section 3.5. Action by Telephonic Communications......................... 14
Section 3.6. Absent or Disqualified Members.............................. 14
Section 3.7. Resignations................................................ 15
Section 3.8. Removal..................................................... 15
Section 3.9. Vacancies................................................... 15
ARTICLE IV
OFFICERS............................... 15
Section 4.1. Number...................................................... 15
Section 4.2. Election.................................................... 15
Section 4.3. Salaries.................................................... 16
Section 4.4. Removal and Resignation; Vacancies.......................... 16
Section 4.5. Authority and Duties of Officers............................ 16
Section 4.6. The President............................................... 16
Section 4.7. Vice Presidents............................................. 17
Section 4.8. The Secretary............................................... 17
Section 4.9. The Treasurer............................................... 18
Section 4.10. Additional Officers......................................... 19
Section 4.11. Security.................................................... 19
ARTICLE V
CAPITAL STOCK............................ 19
Section 5.1. Certificates of Stock, Uncertificated
Shares........................................ 19
Section 5.2. Signatures; Facsimile....................................... 20
Section 5.3. Lost, Stolen or Destroyed Certificates...................... 20
Section 5.4. Transfer of Stock........................................... 20
Section 5.5. Record Date................................................. 21
Section 5.6. Registered Stockholders..................................... 22
Section 5.7. Transfer Agent and Registrar................................ 22
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE VI
INDEMNIFICATION........................... 22
Section 6.1. Nature of Indemnity......................................... 22
Section 6.2. Successful Defense.......................................... 23
Section 6.3. Determination That Indemnification
is Proper..................................... 24
Section 6.4. Advance Payment of Expenses................................. 24
Section 6.5. Procedure for Indemnification of
Directors and Officers........................ 24
Section 6.6. Survival; Preservation of Other Rights...................... 25
Section 6.7. Insurance................................................... 26
Section 6.8. Severability................................................ 26
ARTICLE VII
OFFICES............................... 26
Section 7.1. Registered Office........................................... 26
Section 7.2. Other Offices............................................... 26
ARTICLE VIII
GENERAL PROVISIONS.......................... 27
Section 8.1. Dividends................................................... 27
Section 8.2. Reserves.................................................... 27
Section 8.3. Execution of Instruments.................................... 27
Section 8.4. Corporate Indebtedness...................................... 28
Section 8.5. Deposits.................................................... 28
Section 8.6. Checks...................................................... 28
Section 8.7. Sale, Transfer, etc. of Securities.......................... 28
Section 8.8. Voting as Stockholder....................................... 28
Section 8.9. Fiscal Year................................................. 29
Section 8.10. Seal........................................................ 29
Section 8.11. Books and Records; Inspection............................... 29
ARTICLE IX
AMENDMENT OF AMENDED BY-LAWS..................... 29
Section 9.1. Amendment................................................... 29
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE X
CONSTRUCTION........................... 30
Section 10.1. Construction................................................ 30
</TABLE>
iv
<PAGE> 6
AMERICAN STANDARD COMPANIES INC.
AMENDED BY-LAWS
As adopted on January 4, 1995
ARTICLE I
STOCKHOLDERS
Section 1.1. Annual Meetings. The annual meeting of the stockholders of
the Corporation for the election of Directors and for the transaction of such
other business as properly may come before such meeting shall be held at such
place, either within or without the State of Delaware, and at 10:00 a.m. (local
time) on the first Thursday in May (or, if such day is a legal holiday, then on
the next succeeding business day), or at such other date and hour, as may be
fixed from time to time by resolution of the Board of Directors and set forth in
the notice or waiver of notice of the meeting. [Sections 211(a), (b).(1)
Section 1.2. Special Meetings. Special meetings of the stockholders may be
called at any time by the (i) Chief Executive Officer or (ii) by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized Directors or (iii) for purposes of voting on Director nominees
designated by Kelso ASI Partners, L.P. ("ASI Partners") pursuant to the Amended
and Restated Stockholders Agreement, dated as of December 2, 1994, among the
Corporation, ASI Partners and the other stockholders of the Corporation parties
thereto (the "Amended and Restated Stockholders Agreement") or the removal of
Directors designated for nomination by ASI Partners pursuant to the Amended and
Restated Stockholders Agreement, ASI Partners, so long as ASI Partners, together
with its Affiliates (as defined in the Amended and Restated Stockholders
Agreement), owns at least 10% of the outstanding shares of the Common Stock of
the Corporation. Other than as set forth herein, stockholders shall not be able
to call special meetings. Special meetings of the stockholders shall be held at
such places, within or without the State of Delaware, as shall be specified in
the respective notices or waivers of notice thereof. [Section 211(d).]
- --------
1. Citations are to the General Corporation Law of the State of Delaware as in
effect on December 20, 1994 (the "GCL"), and are inserted for reference only,
and do not constitute a part of the Amended By-Laws.
<PAGE> 7
Section 1.3. Notice of Meetings; Waiver. The Secretary, Acting Secretary
or any Assistant Secretary shall cause written notice of the place, date and
hour of each meeting of the stockholders, and, in the case of a special meeting,
the purpose or purposes for which such meeting is called, to be given personally
or by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the record of stockholders of the Corporation, or, if
he shall have filed with the Secretary or Acting or Assistant Secretary of the
Corporation a written request that notices to him be mailed to some other
address, then directed to him at such other address. Such further notice shall
be given as may be required by law.
No notice of any meeting of stockholders need be given to any stockholder
who submits a signed waiver of notice, whether before or after the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders need be specified in a written waiver of
notice. The attendance of any stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened. [Sections 222, 229.]
Section 1.4. Quorum. Except as otherwise required by law or by the
Restated Certificate of Incorporation, the presence in person or by proxy of the
holders of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. [Section 216.]
Section 1.5. Voting. If, pursuant to Section 5.5 of these Amended By-Laws,
a record date has been fixed, every holder of record of shares entitled to vote
at a meeting of stockholders shall be entitled to one vote for each share
outstanding in his name on the books of the Corporation at the close of business
on such record date, provided, however, that the certificate of designation
pertaining to any series of the Corporation's preferred stock may provide for a
greater number of votes per share of such series. If no record date has been
fixed, then every holder of record of shares entitled to vote at a meeting of
stockholders shall be entitled to one vote (subject to the
2
<PAGE> 8
same proviso as set forth in the immediately preceding sentence) for each share
of stock standing in his name on the books of the Corporation at the close of
business on the day next preceding the day on which notice of the meeting is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. Except as otherwise required by
law, by the Restated Certificate of Incorporation or by these Amended By-Laws,
the vote of a majority of the shares represented in person or by proxy at any
meeting at which a quorum is present shall be sufficient for the transaction of
any business at such meeting. [Sections 212(a), 216.]
Section 1.6. Voting by Ballot. No vote of the stockholders need be taken
by written ballot unless otherwise required by law. Any vote which need not be
taken by ballot may be conducted in any manner approved by the meeting.
Section 1.7. Adjournment. If a quorum is not present at any meeting of the
stockholders, the stockholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present.
Notice of any adjourned meeting of the stockholders of the Corporation need not
be given if the place, date and hour thereof are announced at the meeting at
which the adjournment is taken, provided, however, that if the adjournment is
for more than thirty days, or if after the adjournment a new record date for the
adjourned meeting is fixed pursuant to Section 5.5 of these Amended By-Laws, a
notice of the adjourned meeting, conforming to the requirements of Section 1.3
hereof, shall be given to each stockholder of record entitled to vote at such
meeting. At any adjourned meeting at which a quorum is present, any business may
be transacted that might have been transacted on the original date of the
meeting. [Section 222(c).]
Section 1.8. Proxies. Any stockholder entitled to vote at any meeting of
the stockholders or to express consent to or dissent from corporate action
without a meeting may authorize another person or persons to vote at any such
meeting and express such consent or dissent for him by proxy. A stockholder may
authorize a valid proxy by executing a written instrument signed by such
stockholder, or by causing his or her signature to be affixed to such writing by
any reasonable means including, but not limited to, by facsimile signature, or
by transmitting or authorizing the transmission of a telegram, cablegram or
other means of electronic transmission to the person designated as the holder of
the proxy, a proxy solicitation firm or a like authorized agent. No such proxy
shall be voted or acted upon after the expiration of three years from
3
<PAGE> 9
the date of such proxy, unless such proxy provides for a longer period. Every
proxy shall be revocable at the pleasure of the stockholder executing it, except
in those cases where applicable law provides that a proxy shall be irrevocable.
A stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by filing another duly executed proxy bearing a later date with the
Secretary. Proxies by telegram, cablegram or other electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. Any copy, facsimile telecommunication or other
reliable reproduction of a writing or transmission created pursuant to this
section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission. [Sections 212(b), (c), (d), (e).]
Section 1.9. Organization; Procedure. At every meeting of stockholders the
presiding officer shall be the President or, in the event of his absence or
disability, any Vice President or a presiding officer chosen by a majority of
the stockholders present in person or by proxy. The Secretary or Acting
Secretary, or in the event of his absence or disability, the Assistant
Secretary, if any, or if there be no Assistant Secretary, in the absence of the
Secretary or Acting Secretary, an appointee of the presiding officer, shall act
as Secretary of the meeting. The order of business and all other matters of
procedure at every meeting of stockholders may be determined by such presiding
officer.
Section 1.10. Stockholder Proposals and Nominations of Directors.
Nominations for election to the Board of Directors of the Corporation at a
meeting of the stockholders may be made by the Board of Directors, or on behalf
of the Board of Directors by a Nominating Committee appointed by the Board of
Directors, or (subject to compliance with the remainder of this section) by any
stockholder of the Corporation entitled to vote for the election of Directors at
such meeting. Any nominations, other than those made by or on behalf of the
Board of Directors or any such Nominating Committee, and any proposal by any
stockholder to transact any corporate business at an annual or special
stockholders meeting, shall be made by written notice, mailed by certified mail,
to the Secretary of the Corporation and (i) in the case of an annual meeting,
4
<PAGE> 10
received no later than 50 days prior to the date of the annual meeting;
provided, however, that if less than 50 days' advance notice of a meeting of
stockholders is given to the stockholders, such advance notice of proposed
business or nomination by such stockholder shall have been made or delivered to
the Secretary or Acting Secretary of the Corporation not later than the close of
business on the seventh day following the day on which the written notice of a
meeting was mailed, and (ii) in the case of a special meeting of stockholders,
received not later than the close of business on the tenth day following the day
on which written notice of the date of the meeting was mailed or public
disclosure of the date of the meeting was made, whichever occurs first; and
provided, further, that the foregoing advance notice requirements applicable to
stockholder proposals and nominations of Directors shall not apply to ASI
Partners, so long as ASI Partners, together with its Affiliates, owns at least
10% of the outstanding shares of the Common Stock of the Corporation.
Notwithstanding the foregoing, the inclusion of stockholder proposals in proxy
materials prepared by the Corporation shall be governed by Rule 14a-8 under the
Securities Exchange Act of 1934, as amended. The form of written notice of
Director nominations by a stockholder or stockholders shall set forth as to each
proposed nominee who is not an incumbent Director (i) the name, age, business
address, and if known, residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such nominee, (iii)
the number of shares of stock of the Corporation which are beneficially owned by
each such nominee and the nominating stockholder, and (iv) any other information
concerning the nominee that must be disclosed regarding nominees in proxy
solicitations pursuant to Section 14(a) of the Securities Exchange Act of 1934,
as amended, and the rules under such section.
The Chairman of the Board, or in his absence the President, any Vice
President or the Secretary or Acting Secretary, may, if the facts warrant,
determine and declare to the meeting of stockholders that a nomination or a
proposal made by a stockholder was not made in accordance with the foregoing
procedure and that the defective nomination or proposal shall be disregarded.
Section 1.11. Inspectors of Elections. Preceding any meeting of the
stockholders, the Board of Directors shall appoint one or more persons to act as
Inspectors of Elections, and may designate one or more alternate inspectors. In
the event no inspector or alternate is able to act, the person presiding at the
meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of the duties of an
5
<PAGE> 11
inspector, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector shall:
(a) ascertain the number of shares outstanding and the voting power
of each;
(b) determine the shares represented at a meeting and the validity
of proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors; and
(e) certify his or her determination of the number of shares
represented at the meeting, and his or her count of all votes and ballots.
The inspector may appoint or retain other persons or entities to assist in the
performance of the duties of inspector.
When determining the shares represented and the validity of proxies and
ballots, the inspector shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in accordance
with Section 1.8 of these Amended By-Laws, ballots and the regular books and
records of the Corporation. The inspector may consider other reliable
information for the limited purpose of reconciling proxies and ballots submitted
by or on behalf of banks, brokers or their nominees or a similar person which
represent more votes than the holder of a proxy is authorized by the record
owner to cast or more votes than the stockholder holds of record. If the
inspector considers other reliable information as outlined in this section, the
inspector, at the time of his or her certification pursuant to (e) of this
section shall specify the precise information considered, the person or persons
from whom the information was obtained, when this information was obtained, the
means by which the information was obtained, and the basis for the inspector's
belief that such information is accurate and reliable. [Sections 231(a), (b),
(d).]
Section 1.12. Opening and Closing of Polls. The date and time for the
opening and the closing of the polls for each matter to be voted upon at a
meeting of stock holders shall be announced at the meeting. The inspector of
6
<PAGE> 12
the election shall be prohibited from accepting any ballots, proxies or votes
nor any revocations thereof or changes thereto after the closing of the polls,
unless the Court of Chancery upon application by a stockholder shall determine
otherwise. [Section 231(c).]
Section 1.13. Consent of Stockholders in Lieu of Meeting. Any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of the stockholders of the
Corporation, and the ability of stockholders to consent in writing to the taking
of any action is hereby specifically denied, provided, however, that so long as
ASI Partners, together with its Affiliates, owns at least 10% of the outstanding
shares of the Common Stock of the Corporation, stockholder action may be taken
by written consent in order to vote on Director nominees designated by ASI
Partners pursuant to the Amended and Restated Stockholders Agreement or the
removal of Directors designated for nomination by ASI Partners pursuant to the
Amended and Restated Stockholders Agreement. The preceding sentence shall take
effect on the day following the closing date of the Corporation's initial
underwritten public offering of Common Stock. Every written consent permitted by
this section shall be delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Every written consent permitted by this section shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by law
to the Corporation, written consents signed by a sufficient number of holders
to take action are delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not so consented in writing. [Section 228(a), (c), (d).]
7
<PAGE> 13
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. General Powers. Except as may otherwise be provided by law,
by the Restated Certificate of Incorporation or by these Amended By-Laws, the
business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors which may exercise all such powers of the
Corporation. [Section 141(a).]
Section 2.2. Number and Term of Office. The number of Directors
constituting the entire Board of Directors shall be nine (9), which number may
be modified from time to time by resolution of the Board of Directors, but in no
event shall the number of Directors be less than three (3) or greater than
twenty-one (21). Each Director (whenever elected) shall hold office until his
successor has been duly elected and qualified, or until his earlier death,
resignation or removal. If the number of Directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain or attain a
number of Directors in each class as nearly equal as reasonably possible, but no
decrease in the number of Directors may shorten the term of any incumbent
Director.
Section 2.3. Election of Directors. The members of the Board of Directors
elected by the holders of the Common Stock of the Corporation shall be divided
at the annual meeting of stockholders to be held in 1995 into three classes,
designated Classes I, II and III, which shall be as nearly equal in number as
possible. At the annual meeting of stockholders in 1995, Directors of Class I
shall be elected to hold office for a term expiring at the annual meeting of
stockholders to be held in 1996, Directors of Class II shall be elected to hold
office for a term expiring at the annual meeting of stockholders to be held in
1997 and Directors of Class III shall be elected to hold office for a term
expiring at the annual meeting of stockholders to be held in 1998. At each
succeeding annual meeting of stockholders following such initial classification
and election, the respective successors of Directors whose terms are expiring
shall be elected for terms expiring at the annual meeting of stockholders held
in the third succeeding year. If the annual meeting of stockholders for the
election of Directors is not held on the date designated there for, the
Directors shall cause the meeting to be held as soon thereafter as convenient.
At each meeting of the stockholders for the election of Directors, provided a
quorum is present, the Directors shall be elected by a plurality of the votes
validly cast in such election. Notwithstanding the foregoing, the election,
term, removal and
8
<PAGE> 14
filling of vacancies with respect to Directors elected separately by the holders
of one or more series of Preferred Stock of the Corporation shall not be
governed by this Article II, but rather shall be as provided for in the
resolutions adopted by the Board of Directors creating and establishing such
series of Preferred Stock. [Sections 141(d), 211(b), (c), 216.]
Section 2.4. Annual and Regular Meetings. The annual meeting of the Board
of Directors for the purpose of electing officers and for the transaction of
such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time
to time may by resolution provide for the holding of regular meetings and fix
the place (which may be within or without the State of Delaware) and the date
and hour of such meetings. Notice of regular meetings need not be given,
provided, however, that if the Board of Directors shall fix or change the time
or place of any regular meeting, notice of such action shall be mailed
promptly, or sent by facsimile transmission or telegram, to each Director who
shall not have been present at the meeting at which such action was taken,
addressed to him at his usual place of business, or shall be delivered to him
personally. Notice of such action need not be given to any Director who attends
the first regular meeting after such action is taken without protesting the lack
of notice to him, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting. [Section 141(g).]
Section 2.5. Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the President or, in the event of his
absence or disability, by any Vice President or by the Secretary or Acting
Secretary, at such place (within or without the State of Delaware), date and
hour as may be specified in the respective notices or waivers of notice of such
meetings. Special meetings of the Board of Directors may be called on 24 hours'
notice, if notice is given to each Director personally or by telephone,
telegram, facsimile or other electronic means of transmission, or on five days'
notice, if notice is mailed to each Director, addressed to him at his usual
place of business. Notice of any special meeting need not be given to any
Director who attends such meeting without protesting the lack of notice to him,
prior to or at the commencement of such meeting, or to any Director who submits
a signed waiver of notice, whether before or after
9
<PAGE> 15
such meeting, and any business may be transacted thereat.
[Sections 141(g), 229.]
Section 2.6. Quorum; Voting. At all meetings of the Board of Directors,
the presence of a majority of the total authorized number of Directors shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the Restated Certificate of Incorporation or these Amended
By-Laws, the vote of a majority of the Directors present at any meeting at which
a quorum is present shall be the act of the Board of Directors. [Section
141(b).]
Section 2.7. Adjournment. A majority of the Directors present, whether or
not a quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. No notice need be given of any adjourned meeting unless
the time and place of the adjourned meeting are not announced at the time of
adjournment, in which case notice conforming to the requirements of Section 2.5
shall be given to each Director.
Section 2.8. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting if all members of the Board of Directors consent thereto in writing,
and such writing or writings are filed with the minutes of proceedings of the
Board of Directors. [Section 141(f).]
Section 2.9. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board or, in his absence or if such office
is vacant, by the President, or in their absence by a chairman chosen at the
meeting. The Secretary or Acting Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
Section 2.10. Regulations; Manner of Acting. To the extent consistent with
applicable law, the Restated Certificate of Incorporation and these Amended
By-Laws, the Board of Directors may adopt such rules and regulations for the
conduct of meetings of the Board of Directors and for the management of the
property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.11. Action by Telephonic Communications. Members of the Board
of Directors may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of
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<PAGE> 16
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting. [Section 141(i).]
Section 2.12. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
President or the Secretary or Acting Secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery. [Section 141(b).]
Section 2.13. Removal of Directors. A Director may be removed only for
cause, upon the affirmative vote of the holders of a majority of the outstanding
shares of stock of the Corporation then entitled to vote at an election of
Directors, cast at a special meeting of stockholders called for the purpose or
at an annual meeting; provided, however, that so long as ASI Partners, together
with its Affiliates, owns at least 35% of the outstanding Common Stock of the
Corporation, Directors (including, without limitation, any Director elected
pursuant to Section 2.14) may be removed upon receipt of the requisite vote of
stockholders with or without cause. Any vacancy in the Board of Directors caused
by any such removal may be filled at any such meeting by the stockholders
entitled to vote for the election of the Director so removed. So long as ASI
Partners, together with its Affiliates, owns at least 10% of the outstanding
shares of Common Stock of the Corporation ASI Partners shall be entitled to
either (i) call a special meeting of stockholders or (ii) notwithstanding
anything contained in these Amended By-Laws to the contrary, request that the
stockholders act by written consent, to vote on the election of Director
nominees designated by ASI Partners pursuant to the Amended and Restated
Stockholders Agreement or the removal of Directors designated for nomination by
ASI Partners pursuant to the Amended and Restated Stockholders Agreement.
Notwithstanding the foregoing, the election, term, removal and filling of
vacancies with respect to Directors elected separately by the holders of one or
more series of Preferred Stock of the Corporation shall not be governed by this
Article II, but rather shall be as provided for in the Preferred Stock
certificate of designation creating and establishing such series of Preferred
Stock. [Section 141(k).]
Section 2.14. Vacancies and Newly Created Directorships. If any vacancies
shall occur in the Board of Directors, by reason of death, resignation, removal
(and the stockholders shall not have filled such vacancy as provided in Section
2.13 above) or otherwise, or if the authorized number of Directors shall be
increased, the Directors then
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in office shall continue to act, and such vacancies or newly created
directorships, as the case may be, may be filled by a majority of Directors then
in office, although less than a quorum, provided that so long as ASI Partners,
together with its Affiliates, owns at least 10% of the outstanding shares of the
Common Stock of the Corporation, ASI Partners shall have the exclusive right,
exercisable at any time, to designate for nomination for election by such
remaining Directors an individual to fill any vacancy created by removal or
death of or resignation of a Director designated for nomination by ASI Partners
pursuant to the Amended and Restated Stockholders Agreement and Directors not
affiliated with ASI Partners shall similarly have the exclusive right,
exercisable at any time, to designate for nomination for election by such
remaining Directors an individual to fill any vacancy created by removal or
death of or resignation of a Director designated for election by such
non-affiliated Directors pursuant to the Amended and Restated Stockholders
Agreement. A Director elected by the Directors pursuant to this Section 2.14 to
fill a vacancy or a newly created directorship shall hold office until his
successor has been elected and qualified or until his earlier death, resignation
or removal. [Section 223.]
Section 2.15. Compensation. The amount, if any, which each Director shall
be entitled to receive as compensation for his services as such shall be fixed
from time to time by resolution of the Board of Directors. [Section 141(h).]
Section 2.16. Reliance on Accounts and Reports, etc. A Director, or a
member of any Committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon information, opinions, reports or statements
presented to the Corporation by any of the Corporation's officers or employees,
or Committees designated by the Board of Directors, or by any other person as to
the matters the member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation. [Section 141(e).]
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.1. How Constituted. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate one or more Committees,
including an Executive Committee, each such Committee to consist of such
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number of Directors as from time to time may be fixed by the Board of Directors.
The Board of Directors may designate one or more Directors as alternate members
of any such Committee, who may replace any absent or disqualified member or
members at any meeting of such Committee. Thereafter, members (and alternate
members, if any) of each such Committee may be designated at the annual meeting
of the Board of Directors. Any such Committee may be abolished or re-designated
from time to time by the Board of Directors. Each member (and each alternate
member) of any such Committee (whether designated at an annual meeting of the
Board of Directors or to fill a vacancy or otherwise) shall hold office until
his successor shall have been designated or until he shall cease to be a
Director, or until his earlier death, resignation or removal. [Section 141(c).]
Section 3.2. Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation, including the power to declare dividends and to authorize the
issuance of stock. Each such other Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors.
Neither the Executive Committee nor any such other Committee shall have the
power or authority:
(a) to amend the Restated Certificate of Incorporation (except that
a Committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of
Directors as provided in Section 151(a) of the Delaware General
Corporation Law, fix the designations and any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series),
(b) to adopt an agreement of merger or consolidation,
(c) to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets,
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(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or
(e) to amend the Amended By-Laws of the Corporation.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it. [Section 141(c).]
Section 3.3. Proceedings. Each such Committee may fix its own rules of
procedure and may meet at such place (within or without the State of Delaware),
at such time and upon such notice, if any, as it shall determine from time to
time. Each such Committee shall keep minutes of its proceedings and shall report
such proceedings to the Board of Directors at the meeting of the Board of
Directors next following any such proceedings.
Section 3.4. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such Committee shall constitute a quorum
for the transaction of business. The act of the majority of the members present
at any meeting at which a quorum is present shall be the act of such Committee.
Any action required or permitted to be taken at any meeting of any such
Committee may be taken without a meeting, if all members of such Committee
shall consent to such action in writing and such writing or writings are filed
with the minutes of the proceedings of the Committee. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such. [Section 141(c), (f).]
Section 3.5. Action by Telephonic Communications. Members of any Committee
designated by the Board of Directors may participate in a meeting of such
Committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this provision shall constitute
presence in person at such meeting. [Section 141(i).]
Section 3.6. Absent or Disqualified Members. In the absence or
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member
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of the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. [Section 141(c).]
Section 3.7. Resignations. Any member (and any alternate member) of any
Committee may resign at any time by delivering a written notice of resignation,
signed by such member, to the Chairman or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
Section 3.8. Removal. Any member (and any alternate member) of any
Committee may be removed at any time, either for or without cause, by resolution
adopted by a majority of the whole Board of Directors.
Section 3.9. Vacancies. If any vacancy shall occur in any Committee, by
reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.1. Number. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, one or more Vice Presidents, a
Secretary, a Controller, a General Auditor and a Treasurer, and it may, if it so
determines, elect a Chairman of the Board of Directors from among its members.
The Board of Directors also may elect a Vice Chairman and one or more Acting or
Assistant Secretaries, Assistant Controllers and Assistant Treasurers in such
numbers as the Board of Directors may determine. Any number of offices may be
held by the same person, except that neither the Chairman of the Board of
Directors nor the President shall also hold the office of Secretary. No officer,
other than the Chairman or Vice Chairman, need be a Director of the Corporation.
[Section 142(a), (b).]
Section 4.2. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the
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Board of Directors. Each officer shall hold office until his successor has been
elected and qualified, or until his earlier death, resignation or removal.
[Section 142(b).]
Section 4.3. Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 4.4. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the President or the Secretary or
Acting Secretary. Unless otherwise specified therein, such resignation shall
take effect upon delivery. Any vacancy occurring in any office of the
Corporation, by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. [Section 142(b), (e).]
Section 4.5. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these Amended By-Laws, except that in any
event each officer shall exercise such powers and perform such duties as may be
required by law. [Section 142(a).]
Section 4.6. The President. The President shall preside at all meetings of
the stockholders and Directors at which he is present in the absence of the
Chairman or Vice Chairman, shall be the chief executive officer and the chief
operating officer of the Corporation, shall have general control and supervision
of the policies and operations of the Corporation and shall see that all orders
and resolutions of the Board of Directors are carried into effect. He shall
manage and administer the Corporation's business and affairs and shall also
perform all duties and exercise all powers usually pertaining to the office of a
chief executive officer and a chief operating officer of a corporation. He shall
have the authority to sign, in the name and on behalf of the Corporation,
checks, orders, contracts, leases, notes, drafts and other documents and
instruments in connection with the business of the Corporation, and together
with the Secretary or an Acting or Assistant Secretary, conveyances of real
estate and other documents and instruments to which the seal of the Corporation
is affixed. He shall have the authority to cause the employment or appointment
of such employees and agents of the Corporation as the conduct of the business
of the Corporation may require, to fix their compensation, and to remove or
suspend any employee or agent elected or ap-
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pointed by the President or the Board of Directors. The President shall perform
such other duties and have such other powers as the Board of Directors or the
Chairman may from time to time prescribe.
Section 4.7. Vice Presidents. Each Vice President shall perform such
duties and exercise such powers as may be assigned to him from time to time by
the President. In the absence of the President, the duties of the President
shall be performed and his powers may be exercised by such Vice President as
shall be designated by the President, or failing such designation, such duties
shall be performed and such powers may be exercised by each Vice President in
the order of their earliest election to that office, subject in any case to
review and superseding action by the President.
Section 4.8. The Secretary. The Secretary shall have the following powers
and duties:
(a) He shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He shall cause all notices to be duly given in accordance with
the provisions of these Amended By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a
resolution of the Board of Directors, he shall furnish a copy of such
resolution to the members of such Committee.
(d) He shall be the custodian of the records and of the seal of the
Corporation and cause such seal (or a facsimile thereof) to be affixed to
all certificates representing shares of the Corporation prior to the
issuance thereof and to all instruments the execution of which on behalf
of the Corporation under its seal shall have been duly authorized in
accordance with these Amended By-Laws, and when so affixed he may attest
the same.
(e) He shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by
law, the Restated Certificate of Incorporation or these Amended By-Laws.
(f) He shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in
such manner as to show at any time the number of shares of stock of the
Corpo-
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ration of each class issued and outstanding, the names (arranged
alphabetically or chronologically) and the addresses of the holders of
record of such shares, the number of shares held by each holder and the
date as of which each became such holder of record.
(g) He shall sign (unless the Treasurer, an Assistant Treasurer or
Acting or Assistant Secretary shall have signed) certificates representing
shares of the Corporation the issuance of which shall have been authorized
by the Board of Directors.
(h) He shall perform, in general, all duties incident to the office
of Secretary and such other duties as may be specified in these Amended
By-Laws or as may be assigned to him from time to time by the Board of
Directors, or the President.
Section 4.9. The Treasurer. The Treasurer shall have the following powers
and duties:
(a) He shall have charge and supervision over and be responsible for
the moneys, securities, receipts and disbursements of the Corporation, and
shall keep or cause to be kept full and accurate records of all receipts
of the Corporation.
(b) He shall cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or other
depositaries as shall be selected in accordance with Section 8.5 of
these Amended By-Laws.
(c) He shall cause the moneys of the Corporation to be disbursed by
checks or drafts (signed as provided in Section 8.6 of these Amended
By-Laws) upon the authorized depositaries of the Corporation and cause to
be taken and preserved proper vouchers for all moneys disbursed.
(d) He shall render to the Board of Directors or the President,
whenever requested, a statement of the financial condition of the
Corporation and of all his transactions as Treasurer, and render a full
financial report at the annual meeting of the stockholders, if called upon
to do so.
(e) He shall be empowered from time to time to require from all
officers or agents of the Corporation reports or statements giving such
information as he may
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desire with respect to any and all financial transactions of the
Corporation.
(f) He may sign (unless an Assistant Treasurer or the Secretary or
an Acting or Assistant Secretary shall have signed) certificates
representing stock of the Corporation the issuance of which shall have
been authorized by the Board of Directors.
(g) He shall perform, in general, all duties incident to the office
of treasurer and such other duties as may be specified in these Amended
By-Laws or as may be assigned to him from time to time by the Board of
Directors, or the President.
Section 4.10. Additional Officers. The Board of Directors may appoint such
other officers and agents as it may deem appropriate, and such other officers
and agents and the officers specified in Section 4.1 hereof not covered in
Sections 4.6 through 4.9 hereof shall hold their offices for such terms and
shall exercise such powers and perform such duties as generally pertain to their
respective offices, as well as such powers and duties as from time to time may
be authorized or prescribed by the Board of Directors. The Board of Directors
from time to time may delegate to any officer or agent the power to appoint
subordinate officers or agents and to prescribe their respective rights, terms
of office, authorities and duties. Any such officer or agent may remove any such
subordinate officer or agent appointed by him, for or without cause. [Section
142(a), (b).]
Section 4.11. Security. The Board of Directors may require any officer,
agent or employee of the Corporation to provide security for the faithful
performance of his duties, in such amount and of such character as may be
determined from time to time by the Board of Directors. [Section 142(c).]
ARTICLE V
CAPITAL STOCK
Section 5.1. Certificates of Stock, Uncertificated Shares. The shares of
the Corporation shall be represented by certificates, provided that the Board of
Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation, or rights associated
therewith shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until each
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certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock in the
Corporation represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of the Corporation, by the Chairman, President or a Vice President, and
by the Treasurer or an Assistant Treasurer, or the Secretary or an Acting or
Assistant Secretary, representing the number of shares registered in certificate
form. Such certificate shall be in such form as the Board of Directors may
determine, to the extent consistent with applicable law, the Restated
Certificate of Incorporation and these Amended By-Laws. [Section 158.]
Section 5.2. Signatures; Facsimile. All of such signatures on the
certificate may be a facsimile, engraved or printed, to the extent permitted by
law. In case any officer, transfer agent or registrar who has signed, or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue. [Section 158.]
Section 5.3. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate. [Section 167.]
Section 5.4. Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares, duly endorsed or
accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law
of the
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State of Delaware. Subject to the provisions of the Restated Certificate of
Incorporation and these Amended By-Laws, the Board of Directors may prescribe
such additional rules and regulations as it may deem appropriate relating to the
issue, transfer and registration of shares of the Corporation. [Section
151(f).]
Section 5.5. Record Date. In order to determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date on which the resolution fixing the record date
is adopted by the Board of Directors, and which shall not be more than sixty nor
less than ten days before the date of such meeting. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
pursuant to these Amended By-Laws to consent to corporate action in writing
without a meeting, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of
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business on the day on which the Board of Directors adopts the resolution taking
such prior action.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
of the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. [Section 213.]
Section 5.6. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so. [Section 159.]
Section 5.7. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
ARTICLE VI
INDEMNIFICATION(2)
Section 6.1. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is
- --------
2. Section 145.
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threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he is or was or has agreed to become a Director or
officer of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, and may indemnify
any person who was or is a party or is threatened to be made a party to such an
action, suit or proceeding by reason of the fact that he is or was or has agreed
to become an employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding had no reasonable cause to believe his conduct
was unlawful; except that in the case of an action or suit by or in the right
of the Corporation to procure a judgment in its favor (1) such indemnification
shall be limited to expenses (including attorneys' fees) actually and reasonably
incurred by such person in the defense or settlement of such action or suit, and
(2) no indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
The termination of any action, suit or proceeding by judgment, order
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 6.2. Successful Defense. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in de-
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fense of any action, suit or proceeding referred to in Section 6.1 hereof or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 6.3. Determination That Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 6.1
hereof (unless ordered by a court) shall be made by the Corporation unless a
determination is made that indemnification of the Director or officer is not
proper in the circumstances because he has not met the applicable standard of
conduct set forth in Section 6.1 hereof. Any indemnification of an employee or
agent of the Corporation under Section 6.1 hereof (unless ordered by a court)
may be made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 6.1 hereof. Any such
determination shall be made (1) by a majority vote of the Directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) if there are no such Directors, or if such Directors so direct, by
independent legal counsel in a written opinion, or (3) by the stockholders.
Section 6.4. Advance Payment of Expenses. Expenses (including attorneys'
fees) incurred by a Director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate. The Board of Directors may authorize the Corporation's
counsel to represent such Director, officer, employee or agent in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
Section 6.5. Procedure for Indemnification of Directors and Officers. Any
indemnification of a Director or officer of the Corporation under Sections 6.1
and 6.2, or advance of costs, charges and expenses to a Director or officer
under Section 6.4 of this Article, shall be made promptly, and in any event
within 30 days, upon the written request of the Director or officer. If a
determination by the Corporation that the Director or officer is entitled to
24
<PAGE> 30
indemnification pursuant to this Article is required, and the Corporation fails
to respond within sixty days to a written request for indemnity, the Corporation
shall be deemed to have approved such request. If the Corporation denies a
written request for indemnity or advancement of expenses, in whole or in part,
or if payment in full pursuant to such request is not made within 30 days, the
right to indemnification or advances as granted by this Article shall be
enforceable by the Director or officer in any court of competent jurisdiction.
Such person's costs and expenses incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
action shall also be indemnified by the Corporation. It shall be a defense to
any such action (other than an action brought to enforce a claim for the advance
of costs, charges and expenses under Section 6.4 of this Article where the
required undertaking, if any, has been received by the Corporation) that the
claimant has not met the standard of conduct set forth in Section 6.1 of this
Article, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors, its
independent legal counsel, and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 6.1 of this Article, nor the fact that there has
been an actual determination by the Corporation (including its Board of
Directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 6.6. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the General Corporation Law of the State of Delaware are in
effect. Any repeal or modification of these indemnification provisions shall not
affect any right or obligation then existing with respect to any state of facts
then or previously existing or any action, suit or proceeding previously or
thereafter brought or threatened based in whole or in part upon any such state
of facts. Such a "contract right" may not be modified retroactively without the
consent of such Director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which
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<PAGE> 31
those indemnified may be entitled under any by-law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 6.7. Insurance. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
Director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him or on his behalf in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article,
provided that such insurance is available on acceptable terms, which
determination shall be made by a vote of a majority of the entire Board of
Directors.
Section 6.8. Severability. If this Article VI or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VII
OFFICES
Section 7.1. Registered Office. The registered office of the Corporation
in the State of Delaware shall be located at Corporation Trust Center, 1209
Orange Street in the City of Wilmington, County of New Castle.
Section 7.2. Other Offices. The Corporation may maintain offices or places
of business at such other locations within or without the State of Delaware as
the Board
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of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1. Dividends. Subject to any applicable provisions of law and
the Restated Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, shares of the Corporation's capital stock or rights to acquire the
same.
A member of the Board of Directors, or a member of any Committee
designated by the Board of Directors shall be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or Committees of the Board of Directors, or by any other person as to
matters the Director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends might
properly be declared and paid. [Sections 172, 173.]
Section 8.2. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation,
and the Board of Directors may similarly modify or abolish any such reserve.
Section 8.3. Execution of Instruments. The President, any Vice President,
the Secretary or Acting Secretary or the Treasurer may enter into any contract
or execute and deliver any instrument in the name and on behalf of the
Corporation. The Board of Directors or the President may authorize any other
officer or agent to enter into any con tract or execute and deliver any
instrument in the name and on behalf of the Corporation. Any such authorization
may be general or limited to specific contracts or instruments.
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Section 8.4. Corporate Indebtedness. No loan shall be contracted on behalf
of the Corporation, and no evidence of indebtedness shall be issued in its name,
unless authorized by the Board of Directors or the President or any Vice
President. Such authorization may be general or confined to specific instances.
Loans so authorized may be effected at any time for the Corporation from any
bank, trust company or other institution, or from any firm, corporation or
individual. All bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation issued for such loans shall be made, executed
and delivered as the Board of Directors or the President or any Vice President
shall authorize. When so authorized by the Board of Directors or the President
or any Vice President, any part of or all the properties, including contract
rights, assets, business or good will of the Corporation, whether then owned or
thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or
assigned in trust as security for the payment of such bonds, debentures, notes
and other obligations or evidences of indebtedness of the Corporation, and of
the interest thereon, by instruments executed and delivered in the name of the
Corporation.
Section 8.5. Deposits. Any funds of the Corporation may be deposited from
time to time in such banks, trust companies or other depositaries as may be
determined by the Board of Directors or the President, or by such officers or
agents as may be authorized by the Board of Directors or the President or any
Vice President to make such determination.
Section 8.6. Checks. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such agent or
agents of the Corporation, and in such manner, as the Board of Directors or the
President or any Vice President from time to time may determine.
Section 8.7. Sale, Transfer, etc. of Securities. To the extent authorized
by the Board of Directors or by the President, any Vice President, the Secretary
or Acting Secretary or the Treasurer or any other officers designated by the
Board of Directors or the President may sell, transfer, endorse, and assign any
shares of stock, bonds or other securities owned by or held in the name of the
Corporation, and may make, execute and deliver in the name of the Corporation,
under its corporate seal, any instruments that may be appropriate to effect any
such sale, transfer, endorsement or assignment.
Section 8.8. Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Direc-
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<PAGE> 34
tors, the President or any Vice President or the Secretary or Acting Secretary
shall have full power and authority on behalf of the Corporation to attend any
meeting of stockholders of any corporation in which the Corporation may hold
stock, and to act, vote (or execute proxies to vote) and exercise in person or
by proxy all other rights, powers and privileges incident to the ownership of
such stock. Such officers acting on behalf of the Corporation shall have full
power and authority to execute any instrument expressing consent to or dissent
from any action of any such corporation without a meeting. The Board of
Directors may by resolution from time to time confer such power and authority
upon any other person or persons.
Section 8.9. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year and shall terminate in each
case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be circular in form
and shall contain the name of the Corporation, the year of its incorporation and
the words "Corporate Seal" and "Delaware". The form of such seal shall be
subject to alteration by the Board of Directors. The seal may be used by causing
it or a facsimile thereof to be impressed, affixed or reproduced, or may be used
in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF AMENDED BY-LAWS
Section 9.1. Amendment. These Amended By-Laws may be amended, altered or
repealed
(a) by resolution adopted by a majority of the Board of Directors at
any special or regular meeting of the Board if, in the case of such
special meeting only, notice of such amendment, alteration or repeal is
contained in the notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the stockholders upon the
affirmative vote of a majority of the combined voting power of the then
outstanding stock of the Corporation entitled to vote generally in the
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<PAGE> 35
election of Directors, provided, however, that any amendment, alteration
or repeal of Article I, sections 1.2, 1.10 and 1.13 or Article VI as it
pertains to Directors and officers, shall require the affirmative vote of
65% of the combined voting power of the then outstanding stock of the
Corporation entitled to vote generally in the election of Directors. In
the case of such special meeting only, notice of such amendment,
alteration or repeal must be contained in the notice or waiver of notice
of such meeting. [Section 109(a).]
ARTICLE X
CONSTRUCTION
Section 10.1. Construction. In the event of any conflict between the
provisions of these Amended By-Laws as in effect from time to time and the
provisions of the Restated Certificate of Incorporation of the Corporation as in
effect from time to time, the provisions of such Restated Certificate of
Incorporation shall be controlling.
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<PAGE> 36
AMERICAN STANDARD COMPANY, INC.
AMENDMENT OF BY-LAWS
RESOLVED, that, pursuant to Section 109(a) of the Delaware General
Corporation Law and Section 9.1(a) of the Amended By-laws of the Corporation,
the Board of Directors declares it advisable that Section 2.2 of the Amended
By-laws of the Corporation be amended to read and be as follows:
"Section 2.2. Number and Term of Office. The number of Directors constituting
the entire Board of Directors shall be nine (9), which number may be modified
from time to time by resolution of the Board of Directors, but in no event
shall the number of Directors be less than three (3) or greater than twenty-one
(21). Each Director (whenever elected)shall hold office until his successor
has been duly elected and qualified, or until his earlier death, resignation or
removal. If the number of Directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain or attain a number of
Directors in each class as nearly equal as reasonably possible, but no decrease
in the number of Directors may shorten the term of any incumbent Director."
[Language added by amendment in italics.]
<PAGE> 1
EXHIBIT (10)(viii)
AMERICAN STANDARD COMPANIES INC.
CORPORATE OFFICER SEVERANCE PLAN
(As Amended and Restated as of December 5, 1996)
Section I. Purpose.
The purpose of the Plan is to provide elected officers of the Company with
severance benefits should their employment with the Company terminate under the
circumstances described below. The Plan supersedes any and all previous
severance pay practices or policies of the Company, whether written or
unwritten.
Section II. Definitions.
A. Board - means the Board of Directors of the Company.
B. Cause - means a Participant's (i) willful and continued failure
substantially to perform his duties with the Company or any Subsidiary (other
than any such failure resulting from incapacity due to reasonably documented
physical or mental illness), after a demand for substantial performance is
delivered to such Participant by the Chairman of the Board or officer of
equivalent authority which specifically identifies the manner in which it is
believed that such Participant has not substantially performed his duties, or
(ii) the willful engaging by such Participant in illegal misconduct materially
and demonstrably injurious to the Company or any Subsidiary or to the
trustworthiness or effectiveness of the Participant in the performance of his
duties. For purposes hereof, no act, or failure to act, on such Participant's
part shall be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or omission was
in the best interest of the Company or a Subsidiary. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by such Participant in good faith and in the
best interest of the Company or such Subsidiary.
C. Change of Control - means the occurrence of any of the following
events:
(i) any person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 15% or more of
the combined voting power of the Company's then-outstanding
securities (a "15% Beneficial Owner"); provided, however, that (a)
the term "15% Beneficial Owner" shall not include (1) Kelso ASI
Partners, L.P. and Kelso American Standard Partners,
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<PAGE> 2
L.P. ("Kelso") and their affiliates or their immediate transferees
provided that any such transferee holding 15% or more of the
combined voting power of the Company's outstanding securities
following any such transfer does not following or concurrently with
such transfer acquire any additional shares of such securities
except from Kelso or any of their affiliates or (2) any Beneficial
Owner who has crossed such 15% threshold solely as a result of an
acquisition of securities directly from the Company, or solely as a
result of an acquisition by the Company of Company securities, until
such time thereafter as such person acquires additional voting
securities other than directly from the Company and, after giving
effect to such acquisition, such person would constitute a 15%
Beneficial Owner; and (b) with respect to any person eligible to
file a Schedule 13G pursuant to Rule 13d-1(b)(1) under the Act with
respect to Company securities (an "Institutional Investor"), there
shall be excluded from the number of securities deemed to be
beneficially owned by such person a number of securities
representing not more than 10% of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of two consecutive years beginning after
December 1, 1996, individuals who at the beginning of such period
constitute the Board together with those individuals who first
become directors during such period (other than by reason of an
agreement with the Company or the Board in settlement of a proxy
contest for the election of directors) and whose election or
nomination for election to the Board was approved by a vote of at
least two-thirds of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved (the "Continuing
Directors"), cease for any reason to constitute a majority of the
Board;
(iii) the shareholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, or
a reverse stock split of any class of voting securities of the
Company, or the consummation of any such transaction if shareholder
approval is not obtained, other than such transaction which would
result in at least 75% of the total voting power represented by the
voting securities of the Company or the surviving entity outstanding
immediately after such transaction being beneficially owned by
persons who together owned at least 75% of the combined voting power
of the voting securities of the Company outstanding immediately
prior to such transaction, with the relative voting power of
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<PAGE> 3
each such continuing holder compared to the voting power of each
other continuing holder not substantially altered as a result of the
transaction; provided that, for purposes of this paragraph (iii),
(a) such continuity of ownership (and preservation of relative
voting power) shall be deemed to be satisfied if the failure to meet
such 75% threshold (or to preserve such relative voting power) is
due solely to the acquisition of voting securities by an employee
benefit plan of the Company or of such surviving entity or of any
subsidiary of the Company or such surviving entity and (b) voting
securities beneficially owned by such persons who receive them other
than as holders of voting securities of the Company outstanding
immediately prior to such transaction shall not be taken into
account for purposes of determining whether such 75% threshold (or
such relative voting power) is satisfied;
(iv) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or an agreement for the
sale or disposition of all or substantially all the assets of the
Company unless following the completion of such liquidation or
dissolution, or such sale or disposition, the 75% threshold (and
relative voting power) requirements set forth in sub-paragraph (iii)
above are satisfied; or
(v) any other event which the Plan Administrator determines
shall constitute a Change of Control for purposes of this Plan;
provided, however, that a Change of Control shall not be deemed to have occurred
if one of the following exceptions applies:
(1) Unless a majority of the Continuing Directors and of the Plan
Administrator determines that the exception set forth in this
paragraph (1) shall not apply, none of the foregoing
conditions would have been satisfied but for one or more of
the following persons acquiring or otherwise becoming the
Beneficial Owner of securities of the Company: (A) any person
who has entered into a binding agreement with the Company,
which agreement has been approved by two-thirds of the
Continuing Directors, limiting the acquisition of additional
voting securities by such person, the solicitation of proxies
by such person or proposals by such person concerning a
business combination with the Company (a "Standstill
Agreement"); (B) any employee benefit plan, or trustee or
other fiduciary thereof, maintained by the Company or any
Subsidiary; (C) any Subsidiary; or (D) the Company.
(2) Unless a majority of the Continuing Directors and of the Plan
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<PAGE> 4
Administrator determines that the exception set forth in this
paragraph (2) shall not apply, none of the foregoing
conditions would have been satisfied but for the acquisition
by or of the Company of or by another entity (whether by the
merger or consolidation, the acquisition of stock or assets,
or otherwise) in exchange, in whole or in part, for securities
of the Company, provided that, immediately following such
acquisition, the Continuing Directors constitute a majority of
the Board, or a majority of the board of directors of any
other surviving entity, and, in either case, no agreement,
arrangement or understanding exists at that time which would
cause such Continuing Directors to cease thereafter to
constitute a majority of the Board or of such other board of
directors.
Notwithstanding the foregoing, unless otherwise determined by a majority
of the Continuing Directors, no Change of Control shall be deemed to have
occurred with respect to a particular Participant if the Change of Control
results from actions or events in which such Participant is involved in a
capacity other than solely as an officer, employee or director of the Company.
For purposes of the foregoing definition of Change of Control, the term
"Beneficial Owner," with respect to any securities, shall mean any person who,
directly or indirectly, has or shares the right to vote or dispose of such
securities or otherwise has "beneficial ownership" of such securities (within
the meaning of Rule 13d-3 and Rule 13d-5 (as such Rules are in effect on
December 1, 1996) under the Act), including pursuant to any agreement,
arrangement or understanding (whether or not in writing); provided, however,
that (i) a person shall not be deemed the Beneficial Owner of any security as a
result of any agreement, arrangement or understanding to vote such security (A)
arising solely from a revocable proxy or consent solicited pursuant to, and in
accordance with, the applicable provisions of the Act and the rules and
regulations thereunder or (B) made in connection with, or otherwise to
participate in, a proxy or consent solicitation made, or to be made, pursuant
to, and in accordance with, the applicable provisions of the Act and the rules
and regulations thereunder, in either case described in clause (A) or clause (B)
above whether or not such agreement, arrangement or understanding is also then
reportable by such person on Schedule 13D under the Act (or any comparable or
successor report), and (ii) a person engaged in business as an underwriter of
securities shall not be deemed to be the Beneficial Owner of any securities
acquired through such person's participation in good faith in a firm commitment
underwriting until the expiration of forty days after the date of such
acquisition.
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<PAGE> 5
D. Company - means American Standard Companies Inc., a Delaware
corporation, and any successor thereto.
E. Disability - means a Participant's inability, due to reasonably
documented physical or mental illness, for more than six months to perform his
duties with the Company or a Subsidiary on a full time basis if, within 30 days
after written notice of termination has been given to such Participant, he shall
not have returned to the full time performance of his duties.
F. Effective Date - means April 27, 1991.
G. Good Reason - means any of the following:
(i) an adverse change in a Participant's status or position(s) as an
executive of the Company or of a subsidiary, any adverse change in a
Participant's status or position as an executive of the Company or of a
Subsidiary as a result of a material diminution in his duties or
responsibilities or a relocation of a Participant's principal place of
employment to a location which is at least 50 miles further from such
Participant's principal residence than his or her current location or the
assignment to him of any duties or responsibilities which are inconsistent
with such status or position(s), or any removal of him from or any failure
to reappoint or reelect him to such position(s) (except in connection with
the termination of his employment for Cause, Disability or retirement or
as a result of his death or by him other than for Good Reason);
(ii) a reduction by the Company or such subsidiary in such
Participant's base salary;
(iii) the taking of any action by the Company or a Subsidiary
(including the elimination of a plan without providing substitutes
therefor or the reduction of his awards thereunder) that would
substantially diminish the aggregate projected value of such Participant's
awards under the Company's or such Subsidiary's bonus and benefit plans in
which he was participating at the time of the taking of such action;
(iv) the taking of any action by the Company or such Subsidiary that
would substantially diminish the aggregate value of the benefits provided
him under the Company's or such subsidiary's medical, health, accident,
disability, life insurance, thrift and retirement plans in which he was
participating at the time of the taking of such action; or
(v) any purported termination by the Company or such Subsidiary
of his employment that is not effected for Cause.
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<PAGE> 6
Notwithstanding the foregoing, a termination for Good Reason shall
not have occurred (a) if the Participant consented in writing to the event
giving rise to the "Good Reason", or (b) with regard to the occurrence of
the events described in paragraphs 4(ii), (iii) and (iv) above prior to a
Change of Control, if such reductions or actions are proportionate to the
reductions or actions applicable to other employees in similar positions
pursuant to a cost savings plan.
H. Participant - means each elected officer of the Company.
I. Plan - means the American Standard Companies Inc. Corporate Officer
Severance Plan.
J. Plan Administrator - means the Management Development and Nominating
Committee of the Board (the "MDC") or any committee or individual designated by
the MDC to perform some or all of its administrative functions hereunder.
K. Subsidiary - means any corporation or partnership in which the Company
owns, directly or indirectly, 50% or more of the total combined voting power of
all classes of stock of such corporation or of the capital interest or profits
interest of such partnership.
Section III. Eligibility.
Each Participant shall be eligible to receive the benefits provided under
the Plan in the event of such Participant's voluntary termination for Good
Reason or involuntary termination by the Company other than a termination for
Cause. No other individual shall be eligible for benefits under the Plan and the
payment of benefits hereunder shall not be affected by the payment of retirement
or other benefits under any other Company plan.
Section IV. Severance Payments.
A Participant who satisfies the eligibility requirements of Section III
hereof shall receive severance payments equal to the sum of the following:
A. an amount equal to two times (or in the case of the Chief Executive
Officer of the Company three times) the Participant's annual base salary in
effect on the date the termination occurs; plus
B. the amount of the Participant's annual incentive plan target award in
effect for the calendar year in which the termination occurs determined without
regard to whether the
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<PAGE> 7
applicable targets are obtained, multiplied by a fraction, the numerator of
which is the number of days in the year of termination that the Participant was
an employee of the Company, and the denominator of which is 365; plus
C. the amount (or in the case of the Chief Executive Officer, two times
the amount) of the Participant's annual incentive plan target award in effect
for the year in which the termination occurs determined without regard to
whether the applicable targets are obtained.
Section V. Certain Additional Payments by the Company.
(A) Anything in this Plan to the contrary notwithstanding, in the event it
shall be determined that any payment, award, benefit or distribution (or any
acceleration of any payment, award, benefit or distribution) by the Company (or
any of its affiliated entities) or any entity which effectuates a Change of
Control (or any of its affiliated entities) to or for the benefit of a
Participant (whether pursuant to the terms of this Plan or otherwise, but
determined without regard to any additional payments required under this Section
V) (the "Payments") would be subject to the excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest
or penalties are incurred by a Participant with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Company shall pay to
such Participant (or to the Internal Revenue Service on behalf of Participant)
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by such Participant of all taxes (including any Excise Tax) imposed upon
the Gross-Up Payment, such Participant retains (or has had paid to the Internal
Revenue Service on his behalf) an amount of the Gross-Up Payment equal to the
sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any
deductions disallowed because of the inclusion of the Gross-Up Payment in such
Participant's adjusted gross income and the highest applicable marginal rate of
federal income taxation for the calendar year in which the Gross-Up Payment is
to be made. For purposes of determining the amount of the Gross-Up Payment, a
Participant shall be deemed (i) to pay federal income taxes at the highest
marginal rates of federal income taxation for the calendar year in which the
Gross-Up Payment is to be made, (ii) to pay applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-Up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes and (iii) to have otherwise allowable deductions for federal income tax
purposes at least equal to the Gross-Up Payment.
(B) Subject to the provisions of Section V(a), all determinations required
to be made
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<PAGE> 8
under this Section V, including whether and when a Gross-Up Payment is required,
the amount of such Gross-Up Payment, and the assumptions to be utilized in
arriving at such determinations, shall be made by the public accounting firm
that is retained by the Company as of the date immediately prior to the Change
of Control (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Participant within fifteen (15)
business days of the receipt of notice from the Company or Participant that
there has been a Payment, or such earlier time as is requested by the Company
(collectively, the "Determination"). In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group effecting
the Change of Control, the Participant may appoint another nationally recognized
public accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company
and the Company shall enter into any agreement reasonably requested by the
Accounting Firm in connection with the performance of the services hereunder.
The Gross-Up Payment under this Section V with respect to any Payments shall be
made no later than thirty (30) days following such Payment. If the Accounting
Firm determines that no Excise Tax is payable by the Participant, it shall
furnish the Participant with a written opinion to such effect, and to the effect
that failure to report the Excise Tax, if any, on the Participant's applicable
federal income tax return will not result in the imposition of a negligence or
similar penalty. The Determination by the Accounting Firm shall be binding upon
the Company and Participant. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the Determination, it is possible
that Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment") or Gross-Up Payments are made by the Company which
should not have been made ("Overpayment"), consistent with the calculations
required to be made hereunder. In the event that the Participant thereafter is
required to make payment of any Excise Tax or additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or
for the benefit of the Participant. In the event the amount of the Gross-Up
Payment exceeds the amount necessary to reimburse the Participant for his Excise
Tax, the Accounting Firm shall determine the amount of the Overpayment that has
been made and any such Overpayment (together with interest at the rate provided
in Section 1274(b)(2) of the Code) shall be promptly paid by the Participant (to
the extent he has received a refund if the applicable Excise Tax has been paid
to the Internal Revenue Service) to or for the benefit of the Company.
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Section VI. Payment of Benefits.
Unless the Plan Administrator determines otherwise, all severance payments
hereunder shall be paid in a single lump sum at, or as soon as practicable
after, the Participant's termination of employment.
Section VII. Continuation of Welfare Plan Coverage.
In the event of a Participant's voluntary termination for Good Reason or
his or her involuntary termination by the Company other than a termination for
Cause, such Participant will be entitled, upon payment of any premiums or
co-payments theretofore required for such coverage, to continue all life,
accident, health and disability coverage, on the same basis as in effect on the
date he terminated employment, for a period of 24 months from the date of
termination (36 months in the case of the Chief Executive Officer), provided
that, to the extent permitted by law, such coverage may be terminated at the
discretion of the Plan Administrator in the event the Participant obtains at
least equal alternate coverage.
Section VIII. Financial Planning Assistance.
The Company will reimburse a Participant for all bills which the Plan
Administrator determines are reasonably related to financial planning assistance
and tax preparation, provided that such bills are incurred and evidence of
payment by the Participant is submitted to the Plan Administrator within one
year after the date of termination.
Section IX. Reservation of Right to Amend and Terminate.
The Company reserves the right, whether in an individual case or more
generally, by a majority of the Continuing Directors to amend, reduce or
eliminate the Plan, in whole or in part, at any time and from time to time
without notice, provided that no amendment to this Plan shall be made for two
years following the occurrence of a Change of Control if such amendment would
reduce the benefits hereunder and no such amendment shall be effective if a
Change of Control occurs within six months following such amendment.
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Section X. Relationship to Other Benefits.
No payment under the Plan shall be taken into account in determining any
payments, benefits, coverage levels or participation rates under any incentive
compensation plan, any pension, retirement, profit sharing, group insurance, or
other benefit plan of the Company; provided that, a Participant shall not be
entitled to receive the severance payment set forth in Section IV.B. of this
Plan if such Participant becomes entitled to receive a comparable payment
pursuant to Article IV of the Company's Annual Incentive Plan by reason of a
Change of Control.
Section XI. Administration.
Subject to Section V of the Plan, the Plan Administrator shall have full
power and authority to interpret and carry out the terms of the Plan, and to
exercise discretion where necessary or appropriate in the interpretation and
administration of the Plan, and prior to a Change of Control all decisions by
the Plan Administrator shall be final and binding on all affected parties.
Section XII. Expenses.
All expenses of administering the Plan shall be borne by the Company.
Section XIII. Withholding.
The Company may withhold from any amounts payable hereunder such Federal,
state or local taxes as may be required to be withheld pursuant to any
applicable law or regulation.
Section XIV. Governing Law.
This Plan and all rights and obligations hereunder shall be construed in
accordance with and governed by the laws of the State of Delaware, without
reference to the principles of conflict of laws.
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EXHIBIT (10)(xii)
AMERICAN STANDARD COMPANIES INC.
STOCK INCENTIVE PLAN
(As Amended and Restated as of December 5, 1996)
SECTION 1.
PURPOSE
The purpose of the Plan is to foster and promote the long-term
financial success of the Company and materially increase shareholder value by
(a) motivating superior performance by means of performance-related incentives,
(b) encouraging and providing for the acquisition of an ownership interest in
the Company by Employees, and (c) enabling the Company to attract and retain the
services of an outstanding management team upon whose judgment, interest and
special effort the successful conduct of its operations is largely dependent.
SECTION 2.
DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms
shall have the respective meanings set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(b) "Adjustment Event" shall mean any stock dividend, stock split
or share combination of, or extraordinary cash dividend on, the Common
Stock or recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination, exchange of shares, warrants or rights
offering to purchase Common Stock at a price substantially below Fair
Market Value, or other similar event affecting the Common Stock of the
Company.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means a Participant's (i) willful and continued
failure substantially to perform his duties with the Company or any
Subsidiary (other than any such failure resulting from incapacity due to
reasonably documented physical or mental illness), after a demand for
substantial performance is delivered to such Participant by
<PAGE> 2
the Chairman of the Board or any executive officer which specifically
identifies the manner in which it is believed that such Participant has
not substantially performed his duties, or (ii) the willful engaging by
such Participant in illegal misconduct materially and demonstrably
injurious to the Company or any Subsidiary or to the trustworthiness or
effectiveness of such Participant in the performance of his duties. For
purposes hereof, no act, or failure to act, on such Participant's part
shall be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company or a Subsidiary. Any act,
or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done,
by such Participant in good faith and in the best interest of the Company
or such Subsidiary.
(e) "Change of Control" shall mean the occurrence of any of the
following events:
(i) any person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 15% or more of
the combined voting power of the Company's then-outstanding
securities (a "15% Beneficial Owner"); provided, however, that (a)
the term "15% Beneficial Owner" shall not include (1) Kelso ASI
Partners, L.P. and Kelso American Standard Partners, L.P. ("Kelso")
and their affiliates or their immediate transferees provided that
any such transferee holding 15% or more of the combined voting power
of the Company's outstanding securities following any such transfer
does not following or concurrently with such transfer acquire any
additional shares of such securities except from Kelso or any of
their affiliates or (2) any Beneficial Owner who has crossed such
15% threshold solely as a result of an acquisition of securities
directly from the Company, or solely as a result of an acquisition
by the Company of Company securities, until such time thereafter as
such person acquires additional voting securities other than
directly from the Company and, after giving effect to such
acquisition, such person would constitute a 15% Beneficial Owner;
and (b) with respect to any person eligible to file a Schedule 13G
pursuant to Rule 13d-1(b)(1) under the Act with respect to Company
securities (an "Institutional Investor"), there shall be excluded
from the number of securities deemed to be beneficially owned by
such person a number of securities representing not more than 10% of
the combined voting power of the Company's then-outstanding
securities;
(ii) during any period of two consecutive years beginning
after
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December 1, 1996, individuals who at the beginning of such period
constitute the Board together with those individuals who first
become directors during such period (other than by reason of an
agreement with the Company or the Board in settlement of a proxy
contest for the election of directors) and whose election or
nomination for election to the Board was approved by a vote of at
least two-thirds of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved (the "Continuing
Directors"), cease for any reason to constitute a majority of the
Board;
(iii) the shareholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, or
a reverse stock split of any class of voting securities of the
Company, or the consummation of any such transaction if shareholder
approval is not obtained, other than such transaction which would
result in at least 75% of the total voting power represented by the
voting securities of the Company or the surviving entity outstanding
immediately after such transaction being beneficially owned by
persons who together owned at least 75% of the combined voting power
of the voting securities of the Company outstanding immediately
prior to such transaction, with the relative voting power of each
such continuing holder compared to the voting power of each other
continuing holder not substantially altered as a result of the
transaction; provided that, for purposes of this paragraph (iii),
(a) such continuity of ownership (and preservation of relative
voting power) shall be deemed to be satisfied if the failure to meet
such 75% threshold (or to preserve such relative voting power) is
due solely to the acquisition of voting securities by an employee
benefit plan of the Company or of such surviving entity or of any
subsidiary of the Company or such surviving entity and (b) voting
securities beneficially owned by such persons who receive them other
than as holders of voting securities of the Company outstanding
immediately prior to such transaction shall not be taken into
account for purposes of determining whether such 75% threshold (or
such relative voting power) is satisfied;
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or an agreement
for the sale or disposition of all or substantially all the assets
of the Company unless following the completion of such liquidation
or dissolution, or such sale or disposition, the 75% threshold (and
relative voting power) requirements set forth in sub-
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<PAGE> 4
paragraph (iii) above are satisfied; or
(v) any other event which the Committee determines shall
constitute a Change of Control for purposes of this Plan;
provided, however, that a Change of Control shall not be deemed to have
occurred if one of the following exceptions applies:
(1) Unless a majority of the Continuing Directors and of the
Committee determine that the exception set forth in this
paragraph (1) shall not apply, none of the foregoing
conditions would have been satisfied but for one or more of
the following persons acquiring or otherwise becoming the
Beneficial Owner of securities of the Company: (A) any person
who has entered into a binding agreement with the Company,
which agreement has been approved by two-thirds of the
Continuing Directors, limiting the acquisition of additional
voting securities by such person, the solicitation of proxies
by such person or proposals by such person concerning a
business combination with the Company (a "Standstill
Agreement"); (B) any employee benefit plan, or trustee or
other fiduciary thereof, maintained by the Company or any
Subsidiary; (C) any Subsidiary; or (D) the Company.
(2) Unless a majority of the Continuing Directors and of the
Committee determine that the exception set forth in this
paragraph (2) shall not apply, none of the foregoing
conditions would have been satisfied but for the acquisition
by or of the Company of or by another entity (whether by the
merger or consolidation, the acquisition of stock or assets,
or otherwise) in exchange, in whole or in part, for securities
of the Company, provided that, immediately following such
acquisition, the Continuing Directors constitute a majority of
the Board, or a majority of the board of directors of any
other surviving entity, and, in either case, no agreement,
arrangement or understanding exists at that time which would
cause such Continuing Directors to cease thereafter to
constitute a majority of the Board or of such other board of
directors.
Notwithstanding the foregoing, unless otherwise determined by a
majority of the Continuing Directors, no Change of Control shall be deemed
to have occurred with respect to a particular Participant if the Change of
Control results from actions or events in which such Participant is
involved in a capacity other than solely as an officer, employee or
director of the Company.
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For purposes of the foregoing definition of Change of Control, the
term "Beneficial Owner," with respect to any securities, shall mean any
person who, directly or indirectly, has or shares the right to vote or
dispose of such securities or otherwise has "beneficial ownership" of such
securities (within the meaning of Rule 13d-3 and Rule 13d-5 (as such Rules
are in effect on December 1, 1996) under the Act), including pursuant to
any agreement, arrangement or understanding (whether or not in writing);
provided, however, that (i) a person shall not be deemed the Beneficial
Owner of any security as a result of any agreement, arrangement or
understanding to vote such security (A) arising solely from a revocable
proxy or consent solicited pursuant to, and in accordance with, the
applicable provisions of the Act and the rules and regulations thereunder
or (B) made in connection with, or otherwise to participate in, a proxy or
consent solicitation made, or to be made, pursuant to, and in accordance
with, the applicable provisions of the Act and the rules and regulations
thereunder, in either case described in clause (A) or clause (B) above
whether or not such agreement, arrangement or understanding is also then
reportable by such person on Schedule 13D under the Act (or any comparable
or successor report), and (ii) a person engaged in business as an
underwriter of securities shall not be deemed to be the Beneficial Owner
of any securities acquired through such person's participation in good
faith in a firm commitment underwriting until the expiration of forty days
after the date of such acquisition.
f) "Change of Control Settlement Value" shall mean, with respect to
a share of Common Stock, the excess of the Change of Control Stock Value
over the option price of the Option covering such share of Common Stock,
provided that, with respect to any Option which is an Incentive Stock
Option immediately prior to the election to receive the Change of Control
Settlement Value, the Change of Control Settlement Value shall not exceed
the maximum amount permitted for such Option to continue to qualify as an
Incentive Stock Option.
(g) "Change of Control Stock Value" shall mean the value of a share
of Common Stock determined as follows:
(i) if the Change of Control results from an event described
in clause (iii) of the Change of Control definition, the highest per
share price paid for shares of Common Stock of the Company in the
transaction resulting in the Change of Control;
(ii) if the Change of Control results from an event described
in clauses (i), (ii) or (v) of the Change of Control definition and
no event described
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<PAGE> 6
in clauses (iii) or (iv) of the Change of Control definition has
occurred in connection with such Change of Control, the highest sale
price of a share of Common Stock of the Company on any trading day
during the 60 consecutive trading days immediately preceding and
following the date of such Change of Control as reported on the New
York Stock Exchange Composite Tape, or other national securities
exchange on which the Common Stock is traded, and published in The
Wall Street Journal; or
(iii) if the Change of Control results from an event described
in clause (iv) of the Change of Control definition, the price per
share at which shares of Common Stock are redeemed or exchanged by
their holders in the transaction described in such clause (iv) or,
if there has been no such redemption or exchange, the higher of the
amounts determined in accordance with clause (i) or clause (ii) of
this Change of Control Stock Value definition.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means the Management Development and Nominating
Committee of the Board (or such other committee of the Board that the
Board shall designate), which shall consist of two or more members, each
of whom shall be "disinterested persons" within the meaning of Rule 16b-3,
as promulgated under the Act and serving at the pleasure of the Board.
(j) "Common Stock" means the common stock of the Company, par value
$0.01 per share.
(k) "Company" means American Standard Companies Inc., a Delaware
corporation, and any successor thereto.
(l) "Disability" means a Participant's inability, due to reasonably
documented physical or mental illness, for more than six months to perform
his duties with the Company or a Subsidiary on a full time basis if,
within 30 days after written notice of termination has been given to such
Participant, he shall not have returned to the full time performance of
his duties.
(m) "Dividend Equivalents" means an amount equal to the cash
dividends paid by the Company upon one share of Common Stock for each
Restricted Unit awarded to a Participant in accordance with Section 7 of
the Plan.
(n) "Employee" means any officer or other key employee of the
Company or any of its Subsidiaries, including any employee of a
minority-owned joint venture.
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(o) "Fair Market Value" means, on any date, the average of the
highest and lowest sales price reported for such day on a national
exchange or the average of the highest and lowest bid and asked prices on
such date as reported on a nationally recognized system of price
quotation. In the event that there are no Common Stock transactions
reported on such exchange or system on such date, Fair Market Value shall
mean the closing price on the immediately preceding date on which Common
Stock transactions were so reported.
(p) "Incentive Award" means the award of an Option, a Stock
Appreciation Right, a Restricted Unit, or Restricted Stock under the Plan
and shall also include an award of Common Stock or Restricted Units made
in conjunction with other incentive programs established by the Company.
(q) "Kelso" means Kelso ASI Partners, L.P. and Kelso American
Standard Partners, L.P.
(r) "Option" means the right to purchase Common Stock at a stated
price for a specified period of time. For purposes of the Plan, an Option
may be either (i) an "Incentive Stock Option" with the meaning of Section
222 of the Code or (ii) an Option which is not an Incentive Stock Option
(a "Non-Qualified Stock Option").
(s) "Participant" means any Employee designated by the Committee to
receive an Incentive Award under the Plan.
(t) "Plan" means the American Standard Companies Inc. Stock
Incentive Plan, as set forth herein and as the same may be amended from
time to time.
(u) "Public Offering" means the Company's offering of Common Stock
to the general public through a registration statement filed with the
Securities and Exchange Commission that covers (together with prior
effective registrations) not less than 15% of the shares of Common Stock
outstanding at the closing of such offering on a fully diluted basis.
(v) "Restricted Period" means the period during which Restricted
Units or shares of Restricted Stock are subject to forfeiture or
restrictions on transfer (if applicable) pursuant to Section 7 of the
Plan.
(w) "Restricted Stock" means Common Stock awarded to a Participant
pursuant to the Plan which is subject to forfeiture and restrictions on
transferability in accordance with Section 7 of the Plan.
(x) "Restricted Unit" means a Participant's right to receive
pursuant to the
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<PAGE> 8
Plan one share of Common Stock at the end of a specified period of time,
which right is subject to forfeiture in accordance with Section 7 of the
Plan.
(y) "Retirement" means termination of a Participant's employment on
or after the date the Participant attains age 55 with 10 years of service.
(z) "Stock Appreciation Right" means the right to receive a payment
from the Company, in cash or Common Stock, in an amount determined under
Section 6.12 of the Plan.
(aa) "Subsidiary" means any corporation or partnership in which the
Company owns, directly or indirectly, 50% or more of the total combined
voting power of all classes of stock of such corporation or of the capital
interest or profits interest of such partnership.
2.2. Gender and Number. Except when otherwise indicated by the
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.
SECTION 3.
ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be those Employees selected by the
Committee to participate in the Plan.
SECTION 4.
ADMINISTRATION
4.1. Power to Grant and Establish Terms of Awards. The Committee
shall have the authority, subject to the terms of the Plan, to determine the
Employees to whom Incentive Awards shall be granted and the terms and conditions
of any and all Incentive Awards, including but not limited to the number of
shares of Common Stock to be covered by each Incentive Award, the time or times
at which Incentive Awards shall be granted, and the terms and provisions of the
instruments by which Options shall be evidenced; to designate Options as
Incentive Stock Options or Non-Qualified Stock Options; and to determine the
period of time during which restrictions on Restricted Stock or Restricted Units
shall remain in
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<PAGE> 9
effect. The proper officers of the Company may suggest to the Committee the
Participants who should receive Incentive Awards. The terms and conditions of
each Incentive Award shall be determined by the Committee at the time of grant,
and such terms and conditions shall not be subsequently changed in a manner
which would be adverse to the Participant without the consent of the Participant
to whom such Incentive Award has been granted. The Committee may establish
different terms and conditions for different Participants receiving Incentive
Awards and for the same Participant for each Incentive Award such Participant
may receive, whether or not granted at different times. The grant of any
Incentive Award to any Employee shall neither entitle such Employee to, nor
disqualify him from, the grant of any other Incentive Awards. Notwithstanding
anything else contained in the Plan to the contrary, the Committee may delegate,
subject to such terms and conditions as it shall determine, to any officer of
the Company or to a committee of officers of the Company the authority to grant
Incentive Awards (and to make any and all determinations related thereto) to
Participants who are not subject to the reporting requirements of Section 16(a)
of the Act.
4.2. Substitute Options. The Committee shall have the right, subject
to the consent of Participants to whom Options have been granted, to grant in
substitution for outstanding Options, replacement Options which may contain
terms more favorable to the Participant than the Options they replace,
including, without limitation, a lower exercise price (subject to Section 6.2),
and to cancel replaced Options.
4.3. Administration. The Committee shall be responsible for the
administration of the Plan. Any Incentive Award granted by the Committee may be
subject to such conditions, not inconsistent with the terms of the Plan, as the
Committee shall determine. The Committee, by majority action thereof, is
authorized to prescribe, amend and rescind rules and regulations relating to the
Plan, to provide for conditions deemed necessary or advisable to protect the
interests of the Company to interpret the Plan and to make all other
determinations necessary or advisable for the administration and interpretation
of the Plan to carry out its provisions and purposes. Determinations,
interpretations or other actions made or taken by the Committee pursuant to the
provisions of the Plan shall be final, binding and conclusive for all purposes
and upon all persons. The Committee may consult with legal counsel, who may be
counsel to the Company, and shall not incur any liability for any action taken
in good faith in reliance upon the advice of counsel.
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SECTION 5.
STOCK SUBJECT TO PLAN
5.1. Number. Subject to the provisions of Section 5.3, the number of
shares of Common Stock subject to Incentive Awards under the Plan may not exceed
10% of the number of shares of Common Stock outstanding as of the close of the
Public Offering. The shares to be delivered under the Plan may consist, in whole
or in part, of Common Stock held in treasury or authorized but unissued Common
Stock, not reserved for any other purpose.
5.2. Canceled, Terminated, or Forfeited Awards. Any shares of Common
Stock subject to an Incentive Award which for any reason expires, or is
canceled, terminated or otherwise settled without the issuance of any Common
Stock shall again be available under the Plan.
5.3. Adjustment in Capitalization. The aggregate number of shares of
Common Stock available for Incentive Awards under Section 5.1 or subject to
outstanding Incentive Awards and the respective prices and/or vesting criteria
applicable to outstanding Incentive Awards shall be proportionately adjusted to
reflect, as deemed equitable and appropriate by the Committee, an Adjustment
Event. To the extent deemed equitable and appropriate by the Committee, subject
to any required action by stockholders, in any merger, consolidation,
reorganization, liquidation, dissolution, or other similar transaction, any
Incentive Award granted under the Plan shall pertain to the securities and other
property to which a holder of the number of shares of Common Stock covered by
the Incentive Award would have been entitled to receive in connection with such
event.
Any shares of stock (whether Common Stock, shares of stock into
which shares of Common Stock are converted or for which shares of Common Stock
are exchanged or shares of stock distributed with respect to Common Stock) or
cash or other property received with respect to any award of Restricted Stock or
Restricted Units granted under the Plan as a result of any Adjustment Event, any
distribution of property or any merger, consolidation, reorganization,
liquidation, dissolution or other similar transaction shall, except as provided
in Section 7.4 or as otherwise provided by the Committee at or after the date an
award of Restricted Stock or Restricted Units is made by the Committee, be
subject to the same terms and conditions, including restrictions on transfer, as
are applicable to such shares of Restricted Stock or Restricted Units and any
stock certificate(s) representing or evidencing any shares of stock so received
shall be legended in substantially the same manner as provided in Section 7.5
hereof.
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SECTION 6.
STOCK OPTIONS
6.1. Grant of Options. Options may be granted to Participants at
such time or times as shall be determined by the Committee. Options granted
under the Plan may be of two types: (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options, except that no Incentive Stock Option may be
granted to any Employee of a Subsidiary which is not a corporation. The date of
grant of an Option under the Plan will be the date on which the Option is
awarded by the Committee or, if so determined by the Committee, the date on
which occurs any event the occurrence of which is an express condition precedent
to the grant of the Option. The Committee shall determine the number of Options,
if any, to be granted to the Participant, provided that, in no event shall the
number of shares of Common Stock subject to any Options or related Stock
Appreciation Rights granted to any Participant during any 12 month period exceed
1,000,000 shares as such number may be adjusted pursuant to Section 5.3. Each
Option shall be evidenced by an Option agreement that shall specify the type of
Option granted, the exercise price, the duration of the Option, the number of
shares of Common Stock to which the Option pertains, and such other terms and
conditions not inconsistent with the Plan as the Committee shall determine.
6.2. Option Price. Non-Qualified Stock Options and Incentive
Stock Options granted pursuant to the Plan shall have an exercise price which
is not less than the Fair Market Value on the date the Option is granted.
6.3. Exercise of Options. Options awarded to a Participant under the
Plan shall be exercisable at such times and shall be subject to such
restrictions and conditions including the performance of a minimum period of
service or the satisfaction of performance goals, as the Committee may impose
either at or after the time of grant of such Options, subject to the Committee's
right to accelerate the exercisability of such Option in its discretion.
Notwithstanding the foregoing, unless otherwise determined by the Committee,
Options shall become exercisable in three equal installments on each of the
first three anniversaries of the date of grant. Except as may be provided in any
provision approved by the Committee pursuant to this Section 6.3, after becoming
exercisable each installment shall remain exercisable until expiration,
termination or cancellation of the Option. An Option may be exercised from time
to time, in whole or in part, up to the total number of shares of Common
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<PAGE> 12
Stock with respect to which it is then exercisable. Notwithstanding the
foregoing, no Option shall be exercisable for more than 10 years after the date
on which it is granted.
6.4. Payment. The Committee shall establish procedures governing the
exercise of Options, which shall require that written notice of exercise be
given and that the Option price be paid in full at the time of exercise (i) in
cash or cash equivalents, (ii) in the discretion of the Committee, in shares of
Common Stock which have been owned by the Participant for at least six months'
(or such greater or lesser period as the Committee shall determine) having a
Fair Market Value on the date of exercise equal to such Option price or in a
combination of cash and Common Stock or (iii) in accordance with such procedures
or in such other form as the Committee shall from time to time determine. As
soon as practicable after receipt of a written exercise notice and payment of
the exercise price in accordance with this Section 6.4, the Company shall
deliver to the Participant a certificate or certificates representing the
acquired shares of Common Stock.
6.5. Incentive Stock Options. Notwithstanding anything in the Plan
to the contrary, no term of the Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code, or, without the consent of any Participant affected
thereby, to cause any Incentive Stock Option previously granted to fail to
qualify for the Federal income tax treatment afforded under Section 421 of the
Code.
6.6. Settlement. At the time a Participant exercises an Option in
lieu of accepting payment of the exercise price of the Option and delivering the
number of shares of Common Stock for which the Option is being exercised, the
Committee may direct that the Company either (i) pay the Participant a cash
amount, or (ii) issue a lesser number of shares of Common Stock having a Fair
Market Value on the date of exercise, equal to the amount, if any, by which the
aggregate Fair Market Value of the shares of Common Stock as to which the Option
is being exercised exceeds the aggregate exercise price for such shares, based
on such terms and conditions as the Committee shall establish.
6.7. Termination of Employment Due to Retirement. Unless otherwise
determined by the Committee at the time of grant, in the event a Participant's
employment with
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the Company or a Subsidiary terminates by reason of Retirement, any Options
granted to such Participant which are exercisable at the date of such
Participant's termination of employment may be exercised at any time prior to
three (3) years following the Participant's termination of employment or the
expiration of the term of the Options, whichever period is shorter.
6.8. Termination of Employment Due to Death or Disability. Unless
otherwise determined by the Committee at the time of grant, in the event a
Participant's employment with the Company or a Subsidiary terminates by reason
of death or Disability, any Options granted to such Participant which are
exercisable at the date of such Participant's termination of employment may be
exercised by the Participant or the Participant's designated beneficiary, and if
none is named, in accordance with Section 10.2, at any time prior to one (1)
year following the Participant's termination of employment or the expiration
date of the term of the Options, whichever period is shorter.
6.9. Termination of Employment for Cause. Unless otherwise
determined by the Committee at the time of grant, in the event a Participant's
employment with the Company or a Subsidiary is terminated for Cause, all Options
granted to such Participant which are then outstanding (whether or not
exercisable prior to the date of such termination) shall be forfeited.
6.10. Termination of Employment for Any Other Reason. Unless
otherwise determined by the Committee at or after the time of grant, in the
event a Participant's employment with the Company or a Subsidiary terminates for
any reason other than one described in Section 6.7, 6.8 or 6.9, any Options
granted to such Participant which are exercisable at the date of such
Participant's termination of employment shall be exercisable at any time prior
to 90 days following such Participant's termination of employment or the
expiration of the term of such Options, whichever period is shorter.
6.11. Committee Discretion. Notwithstanding anything else contained
in this Section 6 to the contrary, the Committee may permit all or any portion
of any Options to be exercised following a Participant's termination of
employment for any reason on such terms and subject to such conditions as the
Committee shall determine for a period up to and including, but not beyond, the
expiration of the term of such Options.
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6.12. Stock Appreciation Rights. The Committee may, in its
discretion, include in any Option, either at the time the Option is granted or
thereafter at any time prior to the exercise, termination or expiration of the
Option, a right of the Participant to elect, in lieu of purchasing any shares of
Common Stock in respect of which such Option is exercisable at any time, to
relinquish his Option with respect to any and all of such shares of Common Stock
and to receive from the Company a payment, in cash or Common Stock, equal to the
amount by which (i) the product of (x) the Fair Market Value of a share of
Common Stock on the date of such election multiplied by (y) the number of shares
of Common Stock as to which the Participant shall have made such election
exceeds (ii) the total exercise price for that number of shares of Common Stock
under the terms of such Option. If the Participant shall exercise Stock
Appreciation Rights appertaining to any Option, such Option shall thereafter
remain exercisable, according to its term, only with respect to the number of
shares of Common Stock as to which it would otherwise be exercisable less the
number of shares of Common Stock with respect to which such Stock Appreciation
Rights have been exercised. Each Stock Appreciation Right shall be subject to
the same terms and conditions as the related Option and shall be exercisable
only to the extent the related Option is exercisable.
SECTION 7.
RESTRICTED STOCK AND RESTRICTED UNITS
7.1. Grant of Restricted Stock and Restricted Units. Any award made
hereunder of Restricted Stock or Restricted Units shall be subject to the terms
and conditions of the Plan and to any other terms and conditions not
inconsistent with the Plan (including, but not limited to, requiring the
Participant to pay the Company an amount equal to the par value per share for
each share of Restricted Stock awarded) as shall be prescribed by the Committee
in its sole discretion. As determined by the Committee, with respect to an award
of Restricted Stock, the Company shall either (i) transfer or issue to each
Participant to whom an award of Restricted Stock has been made the number of
shares of Restricted Stock specified by the Committee or (ii) hold such shares
of Restricted Stock for the benefit of the Participant for the Restricted
Period. In the case of an award of Restricted Units, no shares of Common Stock
shall be issued at the time an award is made, and the Company shall not be
required to set aside a fund for the payment of such award.
7.2. Restrictions on Transferability. Shares of Restricted Stock may
not be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered by the
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Participant during the Restricted Period, except as hereinafter provided.
Notwithstanding the foregoing, the Committee may permit (on such terms and
conditions as it shall establish) shares of Restricted Stock to be transferred
during the Restricted Period by the Participant to a member of the Participant's
immediate family or to a trust or similar vehicle for the benefit of such
immediate family members, provided that any shares of Restricted Stock so
transferred shall remain subject to the provisions of this Section 7.
7.3. Rights as a Shareholder. Except for the restrictions set forth
herein and unless otherwise determined by the Committee, the Participant shall
have all the rights of a shareholder with respect to such shares of Restricted
Stock, including but not limited to, the right to vote and the right to receive
dividends. A Participant shall not have any right, in respect of Restricted
Units awarded pursuant to the Plan, to vote on any matter submitted to the
Company's stockholders until such time as the shares of Common Stock
attributable to such Restricted Units have been issued. At the discretion of the
Committee, a Participant's Restricted Unit account may be credited with Dividend
Equivalents during the Restricted Period.
7.4. Restricted Period. Unless the Committee shall otherwise
determine at or after the date an award of Restricted Stock or Restricted Units
is made to the Participant by the Committee, the Restricted Period shall
commence upon the date of grant and shall lapse with respect to the shares of
Restricted Stock or Restricted Units on the third anniversary of the date of
grant, unless sooner terminated as otherwise provided herein. Without limiting
the generality of the foregoing, the Committee may provide for termination of
the Restricted Period upon the achievement by the Participant of performance
goals specified by the Committee at the date of grant. The determination of
whether the Participant has achieved such performance goals shall be made by the
Committee in its sole discretion.
7.5. Legend. Each certificate issued to a Participant in
respect of shares of Restricted Stock awarded under the Plan shall be
registered in the name of the Participant and Shall bear the following (or
similar) legend:
"The shares of stock represented by this certificate are subject to
the terms and conditions contained in the American Standard Companies Inc.
Stock Incentive Plan and may not be sold, pledged, transferred, assigned,
hypothecated or otherwise encumbered in an manner (except as provided in
Section 7.2 of the Plan) until ____________________."
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7.6. Death, Disability or Retirement. Unless the Committee shall
otherwise determine at the date of grant, if a Participant ceases to be employed
by the Company or any Subsidiary by reason of death, Disability or Retirement,
the Restricted Period will lapse as to a pro rated portion of the shares of
Restricted Stock and Restricted Units transferred or issued to such Participant
under the Plan based on the number of days the Participant actually worked since
the date the shares of Restricted Stock or Restricted Units were granted (or in
the case of an award which becomes vested in installments, since the date, if
any, on which the last installment of such Restricted Stock or Restricted Units
became vested); provided that, in the case of an award with respect to which the
restrictions will lapse, if at all, based on the attainment of performance goals
or targets, such vesting shall be deferred until the end of the applicable
performance period and be based on that number of shares of Restricted Stock or
Restricted Units, if any, that would have been earned based on the attainment or
partial attainment of such performance goals or targets. Any shares of
Restricted Stock or Restricted Units as to which the Restricted Period has not
lapsed at the date of a Participant's termination of employment by reason of
death, Disability or Retirement (or which do not become vested after such date
under the preceding sentence) shall revert back to the Company upon such
Participant's termination of employment (or, if applicable, such deferred
vesting date).
7.7. Termination of Employment. Unless the Committee shall otherwise
determine at or after the date of grant, if a Participant ceases to be employed
by the Company or any Subsidiary for any reason other than those specified in
Section 7.6 at any time prior to the date when the Restricted Period lapses, all
shares of Restricted Stock held by the Participant shall revert back to the
Company and all Restricted Units and any Dividend Equivalents credited to such
Participant shall be forfeited upon the Participant's termination of employment.
7.8. Issuance of New Certificates; Settlement of Restricted Units.
Upon the lapse of the Restricted Period with respect to any shares of Restricted
Stock, such shares shall no longer be subject to the restrictions imposed under
Section 7.2 and the Company shall issue or have issued new share certificates
without the legend described in Section 7.5 in exchange for those previously
issued. Upon the lapse of the Restricted Period with respect to any Restricted
Units, the Company shall deliver to the Participant, or the Participant's
beneficiary or estate, as provided in Section 10.2, one share of Common Stock
for each Restricted Unit as to which restrictions have lapsed and any Dividend
Equivalents credited with respect to such Restricted Units and any interest
thereon. The Committee may, in its sole discretion, elect to
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pay cash or part cash and part Common Stock in lieu of delivering only Common
Stock for Restricted Units. If a cash payment is made in lieu of delivering
Common Stock, the amount of such cash payment for each share of Common Stock to
which a Participant is entitled shall be equal to the Fair Market Value of the
Common Stock on the date on which the Restricted Period lapsed with respect to
the related Restricted Unit.
7.9. Performance Related Awards. Notwithstanding anything else contained
in the Plan to the contrary, unless the Committee otherwise determines at the
time of grant, any award of Restricted Shares or Restricted Units, or an award
of Common Stock or Restricted Units made in conjunction with other incentive
plans established by the Company, to an officer of the Company or a Subsidiary
who is subject to the reporting requirements of Section 16(a) of the Exchange
Act, other than an award which will vest solely on the basis of the passage of
time, shall become vested, if at all, upon the determination by the Committee
that performance objectives established by the Committee have been attained, in
whole or in part (a "Performance Award"), to the extent required to ensure that
the grant of such awards are deductible by the Company or such Subsidiary
pursuant to Section 162(m) of the Code. Such performance objectives shall be
determined over a measurement period or periods established by the Committee and
related to at least one of the following criteria, which may be determined
solely by reference to the performance of (i) the Company, (ii) a Subsidiary,
(iii) an affiliate of the Company, or (iv) a division or unit of any of the
foregoing or based on comparative performance of any of the foregoing relative
to other companies: (A) earnings per share; (B) revenues; (C) operating cash
flow; (D) operating earnings; (E) working capital; (F) inventory turnover rates;
(G) earnings to sales ratio; and (H) return on capital (the "Performance
Criteria"). The maximum number of shares of Common Stock that may be subject to
any such Performance Award in any 12 month period shall not exceed 500,000
shares, as such number may be adjusted pursuant to Section 5.3.
SECTION 8.
CHANGE OF CONTROL
8.1. Accelerated Vesting and Payment. In the event of a Change of Control,
the Restricted Period with respect to each share of Restricted Stock and each
Restricted Unit will lapse and each Option and Stock Appreciation Right shall
become immediately exercisable on the date of such Change of Control.
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8.2. Alternative Awards. Notwithstanding any provision of Section 6, any
Participant who holds on the date of a Change of Control an Option or Stock
Appreciation Right granted under this Plan shall be entitled to elect, during
the 60-days period immediately following such Change of Control, in lieu of
acquiring the shares of Common Stock covered by any such Option (or, in the case
of a Stock Appreciation Right, the amount of cash and Common Stock such
Participant would otherwise be entitled to receive upon the relinquishment of
the Option related to such Stock Appreciation Right), to receive, and the
Company shall be obligated to pay, the Change of Control Settlement Value with
respect to shares of Common Stock up to the number of shares covered by such
Option or Stock Appreciation Right, which amount shall be paid in cash.
8.3. No Amendment. Notwithstanding Section 9, the provisions of this
Section 8 may not be amended in any respect following a Change of Control.
SECTION 9.
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
The Board may at any time terminate or suspend the Plan, and from
time to time may amend or modify the Plan. No action of the Board may, without
the consent of a Participant alter or impair his rights under any previously
granted Incentive Award.
SECTION 10.
MISCELLANEOUS PROVISIONS
10.1. Nontransferability of Awards. Unless the Committee shall permit (on
such terms and conditions as it shall establish) an Incentive Award to be
transferred, no Incentive Award granted under the Plan may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. All rights with respect to any
Incentive Award granted to a Participant under the Plan shall be exercisable
during his lifetime only by such Participant or, if transferred as contemplated
by the previous sentence, a permitted transferee.
10.2. Beneficiary Designation. Each Participant under the Plan may from
time to time name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be
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exercised in case of his death. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Committee during his lifetime. In the absence of any such designation,
benefits remaining unpaid or Incentive Awards outstanding at the Participant's
death shall be paid to or exercised by the Participant's surviving spouse, if
any, or otherwise to or by his estate.
10.3. No Guarantee of Employment or Participation. Nothing in the Plan
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary or affiliate. No Employee shall have a right to be selected as a
Participant, or, having been so selected, to receive any future Incentive
Awards.
10.4. Tax Withholding. The Company shall have the power to withhold, or
require a Participant to remit to the Company promptly upon notification of the
amount due, an amount sufficient to satisfy Federal, state and local withholding
tax requirements on with respect to any Incentive Award, and the Company may
defer payment of cash or issuance or delivery of Common Stock until such
requirements are satisfied. The Committee may, in its discretion, permit a
Participant to elect, subject to such conditions as the Committee shall impose
(i) to have Common Stock otherwise issuable or deliverable under the Plan
withheld by the Company or (ii) to deliver to the Company previously acquired
shares of Common Stock, in each case, having a Fair Market Value sufficient to
satisfy all or part of the Participant's estimated total Federal, state and
local tax obligation associated with the transaction.
10.5. Indemnification. Each person who is or shall have been a member of
the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be made a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of any
judgment in any such action, suit or proceeding against him, provided he shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to
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<PAGE> 20
handle and defend it on his own behalf. The foregoing right of indemnification
shall not be exclusive and shall be independent of any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation or By-laws, by contract, as a matter of law, or
otherwise.
10.6. No Limitation on Compensation. Nothing in the Plan shall be
construed to limit the right of the Company to establish other plans or to
pay compensation to its employees in cash or property, in a manner which is
not expressly authorized under the Plan.
10.7. Requirements of Law. The granting of Incentive Awards and the
issuance of shares of Common Stock shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
10.8. Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of
Delaware.
10.9. No Impact On Benefits. Incentive Awards granted under the Plan
are not compensation for purposes of calculating an Employee's rights under
any employee benefit plan.
10.10. Securities Law Compliance. Instruments evidencing Incentive Awards
may contain such other provisions, not inconsistent with the Plan, as the
Committee deems advisable, including (i) a provision limiting the period during
which Stock Appreciation Rights could be exercised to the extent required in
order to avoid the application of Section 16(b) of the Act in the case of
officers of the Company and (ii) a requirement that the Participant represent to
the Company in writing, when an Incentive Award is granted or when he receives
shares with respect to such Award (or at such other time as the Committee deems
appropriate) that he is accepting such Incentive Award, or receiving or
acquiring such shares (unless they are then covered by a Securities Act of 1933
registration statement), for his own account for investment only and with no
present intention to transfer, sell or otherwise dispose of such shares except
such disposition by a legal representative as shall be required by will or the
laws
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of any jurisdiction in winding up the estate of the Participant. Such shares
shall be transferable only if the proposed transfer shall be permissible
pursuant to the Plan and if, in the opinion of counsel satisfactory to the
Company, such transfer at such time will be in compliance with applicable
securities laws.
10.11 Term of Plan. The Plan shall be effective upon its adoption by the
Board and approval by the holders of the Common Stock, provided, however, that
in no event shall the Plan become effective until immediately prior to the
occurrence of a Public Offering. The Plan shall expire on the tenth anniversary
of the date on which it is adopted by the Board (except as to Incentive Awards
outstanding on that date), unless sooner terminated pursuant to Section 9.
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AMERICAN STANDARD COMPANIES INC.
STOCK INCENTIVE PLAN
ADDENDUM
FRANCE
Options may be granted under this Addendum to Participants based in France as
follows:
1) Notwithstanding any other provision of the Plan, options granted to any
Participant holding shares representing 10% or more of the Company's
capital will not be deemed to have been granted pursuant to this Addendum.
2) Notwithstanding any other provision of the Plan, any option whose exercise
price at the time of the grant of the option is less than 80% of the
arithmetical average of the market value of a share on the 20 daily
sessions next preceding the related date of grant, rounded up, shall not
be deemed to have been granted under this Addendum.
3) Notwithstanding any other provision of the Plan, the maximum delay to
grant options relating to shares that will not be repurchased by the
Company is 5 years after the date of the Company shareholders meeting
which authorized the grant of options under the Plan.
4) Notwithstanding any other provisions of the Plan, the exercise price of an
option shall be adjusted only upon the occurrence of the events specified
under the July 24, 1966 corporate law - section 208-5 in accordance with
French law.
5) Notwithstanding any other provision of the Plan, upon the death of a
French Participant, to the extent an option was exercisable by such
Participant at the date of death, all such options shall remain
exercisable for a period of six months from the date of the French
participant's death.
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EXHIBIT (10)(xiii)
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
1996-1998 SUPPLEMENTAL INCENTIVE COMPENSATION PLAN
(As Amended and Restated as of December 5, 1996)
Plan Period
The Plan Period shall be January 1, 1996 through December 31, 1998.
Participants
Plan Participants shall be employees of American Standard Companies
Inc. (the "Corporation") and its subsidiaries, domestic and foreign, in the
following participation categories:
- elected officers of the Corporation ("Officer Participants");
- non-officer Executive Level employees ("Executive Participants");
and
- non-executive Management Level employees who are designated as
Participants by the Officer Participants ("Management
Participants").
Plan Award Opportunities and Forms of Awards
Plan Award Opportunities and forms of Awards will be as set forth in
Schedule A (for Officer Participants), Schedule B (for Executive Participants)
and Schedule C (for Management Participants).
Change of Control Definition
"Change of Control" shall mean the occurrence of any of the following
events:
(i) any person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Corporation representing 15% or more of the combined
voting power of the Corporation's then-outstanding securities (a "15%
Beneficial Owner"); provided, however, that (a) the term "15% Beneficial
Owner" shall not include (1) Kelso ASI Partners, L.P. and Kelso American
Standard Partners, L.P. ("Kelso") and their affiliates or their immediate
transferees provided that any such transferee holding 15% or more
<PAGE> 2
of the combined voting power of the Corporation's outstanding securities
following any such transfer does not following or concurrently with such
transfer acquire any additional shares of such securities except from
Kelso or any of their affiliates or (2) any Beneficial Owner who has
crossed such 15% threshold solely as a result of an acquisition of
securities directly from the Corporation, or solely as a result of an
acquisition by the Corporation of Corporation securities, until such time
thereafter as such person acquires additional voting securities other than
directly from the Corporation and, after giving effect to such
acquisition, such person would constitute a 15% Beneficial Owner; and (b)
with respect to any person eligible to file a Schedule 13G pursuant to
Rule 13d-1(b)(1) under the Act with respect to Corporation securities (an
"Institutional Investor"), there shall be excluded from the number of
securities deemed to be beneficially owned by such person a number of
securities representing not more than 10% of the combined voting power of
the Corporation's then-outstanding securities;
(ii) during any period of two consecutive years beginning after December
1, 1996, individuals who at the beginning of such period constitute the
Board of Directors of the Corporation together with those individuals who
first become directors during such period (other than by reason of an
agreement with the Corporation or the Board of Directors of the
Corporation in settlement of a proxy contest for the election of
directors) and whose election or nomination for election to the Board of
Directors of the Corporation was approved by a vote of at least two-thirds
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved (the "Continuing Directors"), cease for any reason
to constitute a majority of the Board of Directors of the Corporation;
(iii) the shareholders of the Corporation approve a merger, consolidation,
recapitalization or reorganization of the Corporation, or a reverse stock
split of any class of voting securities of the Corporation, or the
consummation of any such transaction if shareholder approval is not
obtained, other than such transaction which would result in at least 75%
of the total voting power represented by the voting securities of the
Corporation or the surviving entity outstanding immediately after such
transaction being beneficially owned by persons who together owned at
least 75% of the combined voting power of the voting securities of the
Corporation outstanding immediately prior to such transaction, with the
relative voting power of each such continuing holder compared to the
voting power of each other continuing holder not substantially altered as
a result of the transaction; provided that, for purposes of this paragraph
(iii), (a) such continuity of ownership (and preservation of relative
voting
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power) shall be deemed to be satisfied if the failure to meet such 75%
threshold (or to preserve such relative voting power) is due solely to the
acquisition of voting securities by an employee benefit plan of the
Corporation or of such surviving entity or of any subsidiary of the
Corporation or such surviving entity and (b) voting securities
beneficially owned by such persons who receive them other than as holders
of voting securities of the Corporation outstanding immediately prior to
such transaction shall not be taken into account for purposes of
determining whether such 75% threshold (or such relative voting power) is
satisfied;
(iv) the shareholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation or an agreement for the sale
or disposition of all or substantially all the assets of the Corporation;
or
(v) any other event which the Management Development and Nominating
Committee determines shall constitute a Change of Control for purposes of
this Plan unless following the completion of such liquidation or
dissolution, or such sale or disposition, the 75% threshold (and relative
voting power) requirements set forth in sub-paragraph (iii) above are
satisfied;
provided, however, that a Change of Control shall not be deemed to have occurred
if one of the following exceptions applies:
(1) Unless a majority of the Continuing Directors and of the Management
Development and Nominating Committee determine that the exception
set forth in this paragraph (1) shall not apply, none of the
foregoing conditions would have been satisfied but for one or more
of the following persons acquiring or otherwise becoming the
Beneficial Owner of securities of the Corporation: (A) any person
who has entered into a binding agreement with the Corporation, which
agreement has been approved by two-thirds of the Continuing
Directors, limiting the acquisition of additional voting securities
by such person, the solicitation of proxies by such person or
proposals by such person concerning a business combination with the
Corporation (a "Standstill Agreement"); (B) any employee benefit
plan, or trustee or other fiduciary thereof, maintained by the
Corporation or any subsidiary of the Corporation; (C) any subsidiary
of the Corporation; or (D) the Corporation.
(2) Unless a majority of the Continuing Directors and the Management
Development and Nominating Committee determine that the exception
set forth in this paragraph (2) shall not apply, none of the
foregoing conditions would have been satisfied but for the
acquisition by or of the Corporation of or by
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<PAGE> 4
another entity (whether by the merger or consolidation, the acquisition of
stock or assets, or otherwise) in exchange, in whole or in part, for
securities of the Corporation, provided that, immediately following such
acquisition, the Continuing Directors constitute a majority of the Board,
or a majority of the board of directors of any other surviving entity,
and, in either case, no agreement, arrangement or understanding exists at
that time which would cause such Continuing Directors to cease thereafter
to constitute a majority of the Board or of such other board of directors.
Notwithstanding the foregoing, unless otherwise determined by a majority of the
Continuing Directors, no Change of Control shall be deemed to have occurred with
respect to a particular Participant if the Change of Control results from
actions or events in which such Participant is involved in a capacity other than
solely as an officer, employee or director of the Corporation.
For purposes of the foregoing definition of Change of Control, the term
"Beneficial Owner," with respect to any securities, shall mean any person who,
directly or indirectly, has or shares the right to vote or dispose of such
securities or otherwise has "beneficial ownership" of such securities (within
the meaning of Rule 13d-3 and Rule 13d-5 (as such Rules are in effect on
December 1, 1996) under the Act), including pursuant to any agreement,
arrangement or understanding (whether or not in writing); provided, however,
that (i) a person shall not be deemed the Beneficial Owner of any security as a
result of any agreement, arrangement or understanding to vote such security (A)
arising solely from a revocable proxy or consent solicited pursuant to, and in
accordance with, the applicable provisions of the Act and the rules and
regulations thereunder or (B) made in connection with, or otherwise to
participate in, a proxy or consent solicitation made, or to be made, pursuant
to, and in accordance with, the applicable provisions of the Act and the rules
and regulations thereunder, in either case described in clause (A) or clause (B)
above whether or not such agreement, arrangement or understanding is also then
reportable by such person on Schedule 13D under the Act (or any comparable or
successor report), and (ii) a person engaged in business as an underwriter of
securities shall not be deemed to be the Beneficial Owner of any securities
acquired through such person's participation in good faith in a firm commitment
underwriting until the expiration of forty days after the date of such
acquisition.
Plan Award Targets
Each Participant shall receive a Plan Award, prorated as provided below,
equal to 50% of his Plan Award Opportunity as soon as practicable after a
determination that the Corporation has achieved the 1995 Strategic Plan
management reporting operating earnings before interest and taxes derived from
existing core businesses for the year 1998 (the
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"Threshold"). Such Plan Award shall be increased to up to 75% of the
Participant's Plan Award Opportunity if actual 1998 management reporting
operating earnings before interest and taxes derived from existing core
businesses ("1998 OEBIT") is at least 5.0% above the Threshold, with such
increase to be graduated to reflect a 1998 OEBIT falling between the 50% and 75%
achievement levels; the Plan Award shall be further increased to up to 100% of
the Participant's Plan Award Opportunity if 1998 OEBIT is at least 16.7% above
the Threshold, with such increase to be graduated to reflect 1998 OEBIT between
the 75% and 100% achievement levels. Calculation of 1998 OEBIT at the 50% and
75% achievement levels shall not include OEBIT derived from acquisitions
involving $25,000,000 in capital.
Forfeitures and Prorations
(a) If a Participant's participation commences after January 1, 1996 or if a
Participant's employment terminates during the Plan Period due to Disability,
death, or retirement under any retirement plan of the Corporation or any of its
subsidiaries, and, in any case, if such Participant's participation in the Plan
shall have been for a minimum of seventy-eight weeks, such Participant (or, in
the event of such Participant's death, his beneficiary) shall receive, if and
when payments with respect to Plan Awards for such Plan Period are made, a
payment equal to a fraction of the value of such Participant's Plan Award
Opportunity (if any) with respect to the Plan Period. The numerator of such
fraction shall be the number of days that such Participant was a Participant
during the Plan Period and the denominator shall be the total number of days in
the Plan Period.
(b) If a Participant's employment terminates during the Plan Period due to
termination for Cause, such Participant shall forfeit all rights to any and all
of his Plan Award Opportunity, the value of which had not yet been paid,
notwithstanding that such Participant may be eligible to retire under a
retirement plan of the Corporation or any of its subsidiaries.
(c) Except as provided in (a) above, if a Participant's employment terminates
during the Plan Period, otherwise than due to Disability, death or retirement
under any plan of the Corporation or any of its subsidiaries, such Participant
shall forfeit all rights to any and all of his Plan Award Opportunity the value
of which had not yet been paid, provided (except as provided in (b) above) the
Management Development and Nominating Committee, in its discretion, may waive
such forfeiture in whole or in part.
(d) For purposes of (a), (b) and (c) above, the terms "Cause" and "Disability"
shall have the meanings set forth in Annex A hereto.
(e) If a Participant's participation category changes during the Plan Period,
his or her Plan
-5-
<PAGE> 6
Award shall be prorated between the Plan Award amount that would
have been received for participation for the entire Plan Period in the earlier
participation category and the Plan Award amount that would have been received
for participation for the entire Plan Period in the later participation
category, based on the number of weeks of participation in each participation
category.
Plan Awards in Stock
Any shares of American Standard Companies Inc. common stock issued as
Plan Awards shall be issued from the shares available under the American
Standard Companies Inc. Stock Incentive Plan, and shall be issued to and
governed by the Trust Agreement for the American Standard Inc. Long-Term
Incentive Compensation Plan and 1994-1995 and 1996-1998 American Standard
Companies Inc. Supplemental Incentive Compensation Plans.
Plan Awards in Cash
There shall be deducted from the cash portion of any Plan Awards such
payroll withholdings as the Corporation deems necessary.
Treatment of Plan Awards
Plan Awards will not be treated as compensation for purposes of the
Savings Plan of American Standard Inc. and Participating Subsidiary
Companies, the American Standard Employee Stock Ownership Plan or any other
benefits based on compensation.
Change of Control
Notwithstanding any other provision of this Plan or any Plan Award, in the
event of a Change of Control, the Plan Period shall end and each Participant
shall receive a Plan Award equal to 100% of such Participant's Plan Award
Opportunity. In such event, (x) the Corporation shall make all payments
hereunder in a single lump sum payment, in cash, Shares or a combination of such
Shares and cash, to each Participant within ten (10) days of such Change of
Control, and (y) each Participant may elect to receive any or all payments
hereunder in cash.
-6-
<PAGE> 7
Administration of Plan
Except with respect to the designation of Management Participants, the
Plan will be administered by the Management Development and Nominating Committee
of the Board of Directors or the delegate of said Committee. Determinations,
interpretations or other actions made or taken by the Management Development and
Nominating Committee shall, prior to a Change of Control, be final, binding and
conclusive for all purposes and upon all persons.
The Board, upon recommendation of the Management Development and
Nominating Committee, shall have the right to amend, suspend or terminate the
Plan at any time; however, no such action of the Board shall diminish, reduce,
alter or impair a Participant's rights assigned to him before the date of such
amendment, suspension, or termination of the Plan without the consent of such
Participant.
Other Provisions
Participation in the Plan shall not affect the right of the Company or any
affiliate thereof at any time to terminate the employment of any Participant. No
interest in this Plan shall be assignable or transferable except to the extent
provided in the Trust Agreement for the American Standard Inc. Long-Term
Incentive Compensation Plan and 1994-1995 and 1996-1998 American Standard
Companies Inc. Supplemental Incentive Compensation Plans.
-7-
<PAGE> 8
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
1996-1998 SUPPLEMENTAL INCENTIVE COMPENSATION PLAN
SCHEDULE A
PLAN AWARD OPPORTUNITIES FOR OFFICER PARTICIPANTS
One times the modified initial and the supplemental Payout Awards for the
1996-1998 Performance Period under the American Standard Inc. Long-Term
Incentive Compensation Plan, payable half in cash (and/or promissory notes of
American Standard Inc.) and half in common stock of American Standard Companies
Inc.
<PAGE> 9
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
1996-1998 SUPPLEMENTAL INCENTIVE COMPENSATION PLAN
SCHEDULE B
PLAN AWARD OPPORTUNITIES FOR EXECUTIVE PARTICIPANTS
Three times the Executive Participants' 1998 awards under American Standard
Inc.'s Annual Incentive Plan (or, in the event of a Change of Control, three
times the Executive Participants' awards under the American Standard Inc. Annual
Incentive Plan in effect for which such Change of Control occurs), payable half
in cash (and/or promissory notes of American Standard Inc.) and half in common
stock of American Standard Companies Inc.
<PAGE> 10
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
1996-1998 SUPPLEMENTAL INCENTIVE COMPENSATION PLAN
SCHEDULE C
PLAN AWARD OPPORTUNITIES FOR MANAGEMENT PARTICIPANTS
Fifteen Thousand Dollars ($15,000), payable in cash.
<PAGE> 11
ANNEX A
"Cause" means a Participant's (A) willful and continued failure
substantially to perform his duties with the Corporation or any Subsidiary
(other than any such failure resulting from incapacity due to reasonably
documented physical or mental illness), after a demand for substantial
performance is delivered to such Participant by the Chairman of the Board or any
executive officer which specifically identifies the manner in which it is
believed that such Participant has not substantially performed his duties, or
(B) the willful engaging by such Participant in illegal misconduct materially
and demonstrably injurious to the Corporation or any Subsidiary or to the
trustworthiness or effectiveness of the Participant in the performance of his
duties. For purposes hereof, no act, or failure to act, on such Participant's
part shall be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or omission was
in the best interest of the Corporation or a subsidiary. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the advice of counsel for the Corporation shall be
conclusively presumed to be done, or omitted to be done, by such Participant in
good faith and in the best interest of the Corporation or such Subsidiary.
"Disability" means a Participant's inability, due to reasonably documented
physical or mental illness, for more than six months to perform his duties with
the Corporation or a Subsidiary on a full time basis if, within 30 days after
written notice of termination has been given to such Participant, he shall not
have returned to the full time performance of his duties.
<PAGE> 1
EXHIBIT 13
[GRAPHIC]
"AS WE BECOME A TRUE LEARNING ORGANIZATION, WE ARE ACQUIRING
THE CRITICAL SKILLS AND ABILITIES TO ADAPT TO
THE RAPIDLY SHIFTING REQUIREMENTS OF THE GLOBAL MARKETPLACE."
AMERICAN STANDARD COMPANIES INC.
1996 ANNUAL REPORT
<PAGE> 2
American Standard is a global, diversified manufacturer. Its operations are
comprised of three segments: Air Conditioning, Plumbing Products, and
Automotive Products.
Air Conditioning Products develops and manufactures Trane(R) and
American Standard(R) air conditioning equipment for use in central air
conditioning systems for commercial, institutional and residential
buildings.
Plumbing Products develops and manufactures American Standard(R),
Ideal Standard(R), Standard(R) and Porcher(R) bathroom and kitchen
fixtures and fittings.
Automotive Products develops and manufactures commercial and utility
vehicle braking and control systems under the WABCO(R) brand.
The Company is a worldwide leader in Demand Flow(R)
Technology ("Demand Flow" or "DFT"), having implemented Demand Flow
processes in its manufacturing facilities and administrative activities.
DFT enhances customer service by reducing manufacturing cycle time,
increasing flexibility and improving product quality. It also improves
productivity by reducing non-value-added work, increasing inventory
turnover, reducing working capital requirements and liberating both
manufacturing and warehouse space.
American Standard and its 35 joint ventures operate 106
manufacturing facilities in 35 countries. The Company employs
approximately 44,000 people worldwide.
[AMERICAN STANDARD LOGO]
[IDEAL STANDARD LOGO]
[PORCHER LOGO]
[TRANE LOGO]
[TRANE LOGO]
[WABCO LOGO]
CONTENTS
Financial Highlights 1
Letter to Stockholders 2
Medical Systems Group 12
Financial Contents 13
Directors and Officers 45
Demand Flow(R) is a registered trademark of the Jc-I-T Institute of Technology,
Inc.
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1996 1995 Change
- ------------------------------------------------------------------------------------------------
Year Ended December 31, (Dollars in millions, except per share amounts)
<S> <C> <C> <C>
Sales $5,805 $5,221 11%
Operating Income (a) $ 586(a) $ 534 10%
Operating Margin (a) 10.1%(a) 10.2% (.1)
Income Before Extraordinary Item (a) $ 189(a) $ 142 33%
Per Share (a) $ 2.42(a) $ 1.90 27%
Demand Flow Performance
Average Inventory Turnover (b) 8.8x 8.3x .5x
Operating Working Capital as a Percent of Sales (c) 4.9% 4.9% --
Net Cash Provided by Operating Activities $ 353 $ 348 1%
</TABLE>
(a) Excludes asset impairment loss in 1996. Effective January 1, 1996, the
Company adopted Statement of Financial Accounting Standards No. 121 ("FAS
121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, resulting in a non-cash charge of $235 million, or
$3.02 per share. Including the asset impairment loss, operating income was
$351 million and loss before extraordinary item was $47 million or $.60 per
share. See Note 2 of Notes to Consolidated Financial Statements.
(b) Twelve-month average inventory turnover with each month calculated using the
following three month's cost of sales annualized, divided by adjusted
inventories as of each month end.
(c) Operating Working Capital as of December 31 divided by annualized fourth
quarter sales. Operating Working Capital is defined as net accounts
receivable and adjusted inventories less accounts payable, accrued payrolls
and other accrued liabilities.
SALES-$5.8 BILLION
Businesses
<TABLE>
<S> <C>
Air Conditioning 59%
Automotive 16%
Plumbing 25%
</TABLE>
Geography
<TABLE>
<S> <C>
Europe 35%
Far East 10%
Other 6%
U.S. 49%
</TABLE>
OPERATING INCOME- $586 MILLION (a)
Businesses
<TABLE>
<S> <C>
Air Conditioning 60%
Automotive 21%
Plumbing 19%
</TABLE>
Geography
<TABLE>
<S> <C>
Europe 29%
Far East 8%
Other 6%
U.S. 57%
</TABLE>
1
<PAGE> 4
TO OUR STOCKHOLDERS
YOUR COMPANY HAD ANOTHER RECORD YEAR IN 1996:
- REVENUES REACHED A NEW HIGH OF $5.8 BILLION,
- INTERNATIONAL REVENUES REACHED $3.0 BILLION,
- EARNINGS PER SHARE, EXCLUDING A GOODWILL WRITE-DOWN, INCREASED 27% TO A
RECORD $2.42,
- INVENTORY TURNS, OUR KEY DEMAND FLOW(R) TECHNOLOGY (DFT) PERFORMANCE
MEASURE, INCREASED ONE-HALF TURN TO 8.8 (NOW CALCULATED ON A MONTHLY
AVERAGE), AND
- WORKING CAPITAL WAS HELD TO 4.9 CENTS FOR EVERY DOLLAR OF SALES
RESULTING IN A TOTAL RETURN TO OUR STOCKHOLDERS OF 37%.
These strong results were achieved despite a decline of $71 million in
operating income from our European operations where markets continue to be
weak.
Our model for growth is based on leveraging our key strengths --
- GLOBALIZATION,
- NEW PRODUCTS AND TECHNOLOGIES AND
- DEMAND FLOW TECHNOLOGY, OUR CORE COMPETENCE,
that sustain our market leadership.
GLOBALIZATION
More than half of our Company's total sales, $3.0 billion, are now
generated overseas. Globalization serves us as --
- AN AVENUE FOR ACCELERATED GROWTH,
- AN ANTIDOTE TO ADVERSE REGIONAL BUSINESS CYCLES, AND
- A MEANS OF ENHANCING OUR COMPETITIVENESS BY PROVIDING LOW-COST SOURCING
ALTERNATIVES.
Our philosophy is to move in anticipation of growth. Plumbing products are
fundamental to the developing infrastructure of emerging markets and, with the
rise of middle-class consumers, demand for air conditioning products increases.
Entering markets early enables us to establish a strong presence as they
develop. Since the early 60's, joint ventures have been the primary expansion
vehicle in emerging markets for American Standard. Establishing and successfully
running joint ventures are core business competences. Even during the Company's
years as a highly leveraged private company with the restrictive covenants that
applied, we were able to sustain our aggressive global expansion utilizing cash
generated from our DFT implementation and innovative financing methods. These
methods have allowed us to start new businesses with minimal up-front capital at
risk while maintaining operating control. The Company's manufacturing joint
ventures now number 35 in 18 countries. Our approach combines local marketing
and distribution expertise with American Standard's brand names, vast practical
experience, training skills, Demand Flow Technology competence, technological
leadership and capital resources. In this manner, we are continuing to grow our
base of operations throughout Asia and are now establishing a presence in
Eastern Europe.
2
<PAGE> 5
[PHOTO]
THE ECONOMIES OF THE DEVELOPING COUNTRIES OF ASIA ARE PROJECTED TO GROW AT
TWO TO THREE TIMES THE RATE FOR THE U.S. AND FOR EUROPE. AT ITS HIGH RATE
OF GROWTH, CHINA COULD BECOME THE WORLD'S LARGEST MARKET FOR PLUMBING AND
AIR CONDITIONING PRODUCTS.
3
<PAGE> 6
Asia-Pacific
The Asia-Pacific region, particularly the People's Republic of China
(PRC), offers exceptional growth opportunities for all our businesses. In
just a few years, China itself could become the largest plumbing and air
conditioning market in the world. Following the opening of the PRC to the
West, we established our first Plumbing Products joint venture in
Guangdong province in 1985. From this base, we have expanded our
manufacturing presence to provide a full complement of plumbing products
through five new joint ventures and one wholly-owned subsidiary in
Guanzhou, Beijing, Shanghai and Tianjin. These seven companies position
American Standard as the largest full-line manufacturer of plumbing
products in the PRC.
INTERNATIONAL SALES
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Europe $1,610 $1,361 $1,584 $1,937 $2,033
Far East 193 254 310 426 566
Other 294 329 354 365 377
----- ----- ----- ----- -----
$2,097 $1,944 $2,248 $2,728 $2,976
===== ===== ===== ===== =====
</TABLE>
$3 BILLION IN TOTAL WITH THE FAR EAST MARKETS NEARLY $600 MILLION AND
GROWING 34% ANNUALLY.
Air Conditioning Products, with three joint ventures in the PRC,
will establish a fourth joint venture in 1997 to become an integrated
manufacturer and distributor of a broad range of residential and
commercial air conditioning systems and related products. Automotive
Products has also established manufacturing operations there. We
contemplate further PRC ventures over the next two years for all our
businesses.
Our goal is to generate $1 billion in annual sales from all our PRC
ventures.
Elsewhere throughout the Asia-Pacific region, we are expanding our
network of companies. Plumbing Products recently added Vietnam to its
existing regional manufacturing base of five countries. Air Conditioning
Products is looking to expand its four-country network of manufacturing
joint-venture companies. Manufacturing joint ventures in India and Japan
broaden Automotive Products presence in the region.
Eastern Europe
The Company is laying the groundwork for a strong regional presence in
Eastern Europe. Our largest European vitreous china facility was
established through a joint venture in the Czech Republic in 1992. We also
have begun building a large vitreous china plant in Bulgaria,
complementing our existing fittings facility. Air Conditioning Products is
expanding its sales and service network in most eastern European
countries, and
4
<PAGE> 7
Automotive Products is also seeking a joint venture opportunity there.
These initiatives will enhance our competitive advantage in the region.
Other Market Opportunities
There are a great many opportunities to grow our business both in the
countries where we already have an established presence and in new ones.
Sourcing its WABCO ABS systems from its European businesses, Automotive
Products has gained a leading presence in the U.S. heavy-truck industry
through its joint venture with Rockwell International. U.S. federal
regulations now mandating anti-lock braking systems on all new heavy
trucks will serve as a catalyst for accelerated growth over the next
several years. Our new manufacturing joint venture with Cummins Engine
will establish an Automotive Products' manufacturing presence in North
America and further enhance its growth in the U.S.
Air Conditioning Products is now leveraging its strong base of U.S.
national accounts by servicing customer needs on a global basis. Customers
doing business in two or more regions of the world can rely on consistent
quality, standards, performance and service for their indoor environment
needs. Targeted market segments that could benefit most from this strategy
include fast food restaurants, electronics manufacturing facilities and
retail merchandising stores.
Low-Cost Sourcing
Aside from access to vast new markets, globalization supports our economic
model for a low-cost sourcing strategy developed in the early 90's. This
strategy has been instrumental in the turnaround of U.S. Plumbing's
operating results. Similarly, we will be using our expanding manufacturing
base in Eastern Europe to enhance our competitive position in mature
markets around the world.
NEW PRODUCTS AND TECHNOLOGY
Developing advanced technologies is also critical to maintaining our
competitive advantage. Automotive Products continues its leadership in
braking systems and controls with its recently released "brake-by-wire" or
electronic braking system (EBS). WABCO EBS is a natural evolution of
anti-lock braking systems (ABS) and has been under development by
Automotive Products for more than 10 years. EBS is a unified
electronically-controlled system for braking. Mercedes-Benz, the world's
largest truck manufacturer, features WABCO EBS as standard equipment on
its all-new Actros heavy-duty trucks, and we expect other manufacturers in
Europe and the United States to offer EBS.
5
<PAGE> 8
Additionally, we introduced a new disc air brake technology for
heavy-duty vehicles, which shortens substantially the distance required to
come to a full stop compared to conventional braking systems. Through a
continued emphasis on product development, we maintain a leading position
in the world's commercial vehicle markets.
Air Conditioning Products is starting a major strategic product
initiative -- a universal mini-split system. Mini-splits are ductless room
air conditioning systems consisting of two separate units -- a condensing
unit which is mounted outdoors and an indoor unit which distributes cold
air. Such products are ideal for housing with solid wall construction and
have been popular throughout Asia and Europe. We estimate the worldwide
mini-split market potential outside Japan to be in excess of $7 billion.
With manufacturing plants in Thailand, China, France and Egypt, we are
proceeding with plans to build an effective worldwide distribution base.
Air Conditioning Products is also redesigning its chiller lines to
further improve efficiencies, the most critical factor to our customers.
The success of the new versatile "Horizon" absorption chiller, launched in
1996, is strengthening our leading market position in the U.S. and is
ideally suited for the worldwide industrial absorption chiller market.
Medical Systems Group
Our research efforts have also led to the development of two totally new
technologies which have now been incorporated into a fourth business
segment -- Medical Systems. Seven years ago, we began exploring the use of
laser technology in our ceramics manufacturing and that development
continues. During the early stages, however, we were introduced to
laser-based medical diagnostic technologies being developed by some of the
same scientists. We viewed these technologies as having breakthrough
potential and chose to fund their development. We formed an advisory board
of noted scientists and medical practitioners to provide counsel and
direction to our research. These innovative technologies were quietly
nurtured into what is today our two medical diagnostic product companies,
Sienna Biotech Inc. and Alimenterics Inc.
In order to accelerate the growth of Sienna Biotech, we decided to
pursue acquisitions. In March 1997, we signed agreements to acquire the
European in vitro medical diagnostic business of Sorin Biomedica S.p.A.
and INCSTAR Corporation in the U.S., which is a Sorin subsidiary. Sorin
and INCSTAR will enable us to accelerate development of Sienna's
Copalis(TM) technology by providing a recognized source of testing assays
and an established marketing organization. Our initial focus will be on
niche markets such as physicians' office laboratories.
6
<PAGE> 9
[PHOTO]
THE ECONOMIES OF EASTERN EUROPE ARE EXPECTED TO ACHIEVE SIGNIFICANT
GROWTH. INCREASING DEMAND FOR WEST EUROPEAN STYLE PLUMBING LUXURIES AND
AIR CONDITIONING SYSTEMS ALONG WITH INCREASING TRUCK TRANSPORTED COMMERCE
WITH WESTERN EUROPE PRESENT OPPORTUNITIES FOR ALL OUR BUSINESSES.
7
<PAGE> 10
DEMAND FLOW TECHNOLOGY
The differentiation of American Standard lies in how its businesses are
managed to achieve superior levels of operating performance. The core
competence of our Company is Demand Flow Manufacturing (DFM). DFM is a
flexible, formulated process that systematically aligns workflow
production resources -- people, machines, materials and space allocation
-- in the most efficient manner.
As discussed at length in our report last year, the Company excels
in developing and deploying Demand Flow Technology concepts and techniques
throughout our businesses worldwide. While DFM has been implemented in all
our facilities, the level of implementation is not the same. Based on our
understanding of DFM today, we have achieved, on average, only 60% of full
implementation. What is exciting is that as we continue to refine and
expand Demand Flow Technology, we see new opportunities to enhance our
competitiveness by applying it to all aspects of our business.
Process Organization
In 1995, we took a bold step toward our transformation into a process
organization. The impetus for this radical structural realignment was the
introduction of Demand Flow concepts into our administrative areas, which
we term Demand Flow Office. This requires the dismantling of the
traditional functional boundaries, significantly changing roles and
responsibilities within the organization. To date, more than half of our
manufacturing and administrative facilities worldwide have established
process teams which are collocated to improve communication and
information-sharing. This effort is already beginning to pay dividends in
our enhanced level of responsiveness to market changes and customer needs.
Although some of our businesses have performed very well in this new
environment, it is a complex, ongoing transition. Process management is
the ultimate extension of Demand Flow Technology and, at this level, there
are no textbook examples. We are charting our own course.
PROCESS ORGANIZATION
<TABLE>
<CAPTION>
PROCESSES CUSTOMERS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STRATEGY IDEA CONCEPT
- ------------------------------------------------------------------------------------
PRODUCT DEVELOPMENT CONCEPT PRODUCT
- ------------------------------------------------------------------------------------
DEMAND CREATION PROPOSAL ORDER
- ------------------------------------------------------------------------------------
ORDER FULFILLMENT ORDER PAYMENT
- ------------------------------------------------------------------------------------
CUSTOMER SERVICE INQUIRY RESOLUTION
- ------------------------------------------------------------------------------------
CENTERS OF EXCELLENCE ENGINEERING FINANCE MARKETING INFO. TECH.
COACH COACH COACH COACH
</TABLE>
TEAMS, FROM PREVIOUS TRADITIONAL FUNCTIONAL RESPONSIBILITIES, ARE COLLOCATED TO
ALIGN WORK, COMMUNICATION AND INFORMATION FLOWS ALONG KEY BUSINESS PROCESSES.
COACHING SUPPORTS PROCESSES BY DEVELOPING PEOPLE AND RESOURCES. PRODUCTIVITY IS
INCREASED AND RESPONSIVENESS IS ENHANCED.
8
<PAGE> 11
Training and Best Practices
Significant resources have been dedicated to ensure that our associates
are advancing their knowledge and skills. Our training programs have been
translated into 11 languages and are taught by a multi-lingual cadre of
in-house trainers around the globe. Additionally, the American Standard
College, located at our corporate headquarters, provides specialized
instruction in Demand Flow Technology and Process Management concepts to
several thousand associates who attend annually. Here, the Company's best
practices are identified and formalized for global deployment. As we
become a true learning organization, we are acquiring the critical skills
and abilities to adapt to the rapidly shifting requirements of the global
marketplace.
Demand Flow Technology is the defining culture of our company. It has
not been an easy journey these past eight years, and it is far from over.
We are confident that our DFT driven culture has very significant
value-enhancing characteristics, benefiting stockholders and other
constituents.
A NEW ERA
The new year begins with another milestone for the Company. In the first
quarter of 1997, the Company participated with Kelso ASI Partners in
liquidating its investment. Kelso was a very supportive stockholder
throughout our LBO period and our transition back to being a
publicly-traded company. We are pleased to see its investment brought to a
highly successful conclusion, as measured by the stock price appreciation
both as a private and public company. Though our stock has more than
doubled in value since we went public two years ago, we believe it remains
undervalued relative to the Company's growth record and prospects.
Therefore in carrying out this transaction, the Company repurchased 4.6
million shares of the Company's stock, and the balance of the shares was
sold to the public through a secondary offering. We welcome our new
investors who became stockholders through this offering. We are eager to
share our growth with you.
BENEFITS FROM DEMAND FLOW CONTINUE
[Graph depicting reduction in working capital from 16% of sales in 1988 to
4.9% of sales in 1996, and increase in average inventory turns from 3.0
times in 1988 to 8.8 times in 1996.]
INVENTORY TURNOVER HAS NEARLY TRIPLED AND WORKING CAPITAL NEEDS REDUCED BY
$650 MILLION.
9
<PAGE> 12
In recognizing our success to date --
- WE THANK OUR CUSTOMERS -- wholesale and retail
distributors, contractors, architects, original equipment manufacturers
and consumers -- for their strong belief in the quality of our products
and services. We will work hard continually to earn your business
through product and service excellence and with uncompromising business
integrity.
- WE THANK THE MORE THAN 40,000 AMERICAN STANDARD ASSOCIATES WORLDWIDE who
make our goals, plans and strategies a reality everyday. You have
supported our DFT initiatives -- Demand Flow Manufacturing and Demand
Flow Office -- wholeheartedly and enthusiastically. The changes we have
introduced over the past several years have been difficult, but we are
ever closer to reaching our goals thanks to your personal commitment and
daily contributions.
- WE THANK OUR SUPPLIERS who have embraced our Demand Flow initiatives and
introduced these concepts and principles into their own businesses in
order to serve us better. This is a win-win situation for us all, and we
are glad you see the opportunities in working together.
- WE THANK OUR STOCKHOLDERS for their continued confidence in the
long-term prospects for our Company.
OUTLOOK
Our outlook for 1997 is for continued growth in each of our businesses
with the expectation of some market improvement in Europe, particularly in
the second half of the year.
Looking to the longer term, we have deliberately set our internal
stretch goals high --
- $10 BILLION TOTAL SALES IN 2000
- 15 INVENTORY TURNS
- 15% OPERATING MARGIN
- ZERO WORKING CAPITAL
to serve as a beacon toward exceptional levels of performance.
Sincerely yours,
Emmanuel A. Kampouris
Chairman, President and Chief Executive Officer American Standard
Companies Inc.
[Photo of Emmanuel A. Kampouris]
10
<PAGE> 13
[PHOTO]
LATIN AMERICA IS ANOTHER REGION WHERE ECONOMIC GROWTH IS PROJECTED TO BE
AHEAD OF BOTH THE U.S. AND WESTERN EUROPE. IMPROVING LOCAL MARKETS AND A
FAVORABLE BUSINESS ENVIRONMENT CREATED BY THE NORTH AMERICAN FREE TRADE
AGREEMENT OPENS THE DOOR TO NEW OPPORTUNITIES.
11
<PAGE> 14
LOOKING TO OUR FUTURE --
MEDICAL SYSTEMS
Medical diagnostics are high margin, non-cyclical businesses with long-term
growth potential and present a significant business opportunity for
American Standard. Sienna's Copalis(TM) technology enables a user to
perform multiple tests simultaneously on a single sample. This method
contrasts with current technologies which require multiple procedures with
diverse laboratory instruments, often in separate laboratory locations.
Sienna's first products focus on pre-natal diagnostics. The Copalis system
and its initial diagnostic tests received U.S. Federal Drug Administration
(FDA) approval in 1996 and will be marketed and sold in 1997.
Alimenterics' LARATM system provides a noninvasive method for the
diagnosis of gastrointestinal diseases via the breath. This method, too,
differs from current technologies which require endoscopy or other
expensive, invasive testing procedures. Alimenterics' initial product
focus is on the detection of H.pylori, the bacterium associated with
peptic ulcer disease. It submitted filings with the European Agency for
the Evaluation of Medicinal Products in 1996 for its LARA system and will
submit a regulatory approval application to the FDA later this year.
[PHOTO]
DESIGNED FOR EASE OF USE, COPALIS TECHNOLOGY ENABLES A NURSE OR
TECHNOLOGIST TO PERFORM MULTIPLE TESTS SIMULTANEOUSLY ON A SINGLE TEST
SAMPLE WITH SIGNIFICANTLY FASTER RESULTS AND AT LOWER COSTS THAN OTHER
TECHNOLOGIES.
Both technologies have extended applications within the medical
diagnostics industry. Additional product applications for the Copalis
system include fertility and infectious disease testing. Copalis also has
applications beyond the bio-medical field including food and dairy
testing, environmental monitoring and veterinary diagnostics. Other
disease detection areas for the LARA system include lactose intolerance,
bacterial overgrowth and liver dysfunction.
[PHOTO]
THE LARA SYSTEM IS A FULLY-AUTOMATED, FREE STANDING DIAGNOSTIC DEVICE WITH
PRE-PROGRAMMED SELF-DIAGNOSTICS AND OTHER FEATURES THAT MAKE IT EASY TO
USE. THE TECHNOLOGY, WHICH MEASURES ISOTOPIC RATIOS IN BREATH SAMPLES, IS
AS PRECISE AND ACCURATE AS, BUT LESS EXPENSIVE AND COMPLEX THAN, CURRENT
TECHNOLOGIES.
THE IDEAL MATCH
To support the growth and development of Sienna and Alimenterics, the
Company is in the process of acquiring Sorin Biomedica and INCSTAR
Corporation, a Sorin subsidiary. The synergistic benefits are substantial.
Sorin and INCSTAR will accelerate the menu development and marketing
process for Sienna's Copalis technology. They will provide Sienna with the
chemistry needed for Copalis while obtaining a closed diagnostic platform
to enhance their own market positioning. As a result, all three businesses
stand to benefit from the merger. Sorin/INCSTAR's diagnostic business,
with approximately 100 research and development scientists, will enable
the Company to accelerate development of the Copalis technology by
providing a recognized source of immunological reagents. Both Sienna and
Alimenterics will also benefit from Sorin/INCSTAR's established marketing
organization.
The Company believes that the value of bringing these businesses
together is well over and above the value of the businesses on a
standalone basis.
12
<PAGE> 15
FINANCIAL CONTENTS
<TABLE>
<S> <C>
Five Year Financial Summary 14
Management's Discussion and Analysis
Overview 15
Air Conditioning Products 16
Plumbing Products 17
Automotive Products 19
Financial Review 20
Management's Report on Financial Statements 24
Report of Independent Auditors 25
Financial Statements 26
</TABLE>
13
<PAGE> 16
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Year Ended December 31, (Dollars in millions, except per share data)
SEGMENT DATA
Sales:
Air Conditioning Products $ 3,437 $ 2,953 $ 2,480 $ 2,100 $ 1,892
Plumbing Products 1,452 1,270 1,218 1,167 1,170
Automotive Products 916 998 759 563 730
------- ------- ------- ------- -------
$ 5,805 $ 5,221 $ 4,457 $ 3,830 $ 3,792
======= ======= ======= ======= =======
Operating income before asset impairment loss:
Air Conditioning Products $ 353 $ 259 $ 182 $ 133 $ 104
Plumbing Products 110 120 111 108 108
Automotive Products 123 155 62 41 88
------- ------- ------- ------- -------
586 534 355 282 300
Asset impairment loss:
Air Conditioning Products (121)(a) -- -- -- --
Plumbing Products (114)(a) -- -- -- --
------- ------- ------- ------- -------
(235) -- -- -- --
------- ------- ------- ------- -------
Total operating income 351 534 355 282 300
Interest expense (198) (213) (259) (278) (289)
Corporate items (95) (94) (111) (85) (63)
------- ------- ------- ------- -------
Income (loss) before income taxes and extraordinary item 58 227 (15) (81) (52)
Income taxes (105) (85) (62) (36) (5)
------- ------- ------- ------- -------
Income (loss) before extraordinary item $ (47) $ 142 $ (77) $ (117) $ (57)
======= ======= ======= ======= =======
Per share $ (.60)(a) $ 1.90 $ (1.29) $ (2.11) $ (1.24)
======= ======= ======= ======= =======
OTHER DATA
Demand Flow Performance:
Average inventory turnover (b) 8.8x 8.3x 7.2x 6.2x 5.3x
Operating working capital as a percent of sales (c) 4.9% 4.9% 4.9% 5.9% 7.5%
Net cash provided by operating activities $ 353 $ 348 $ 257 $ 201 $ 174
</TABLE>
(a) Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("FAS 121"), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, resulting in
a non-cash charge of $235 million, or $3.02 per share. Excluding the asset
impairment loss, income per share before extraordinary item was $2.42. See
Note 2 of Notes to Consolidated Financial Statements.
(b) Twelve-month average inventory turnover with each month calculated using the
following three month's cost of sales annualized, divided by adjusted
inventories as of each month end.
(c) Operating working capital as of December 31 divided by annualized fourth
quarter sales. Operating working capital is defined as net accounts
receivable and adjusted inventories less accounts payable, accrued payrolls
and other accrued liabilities.
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company achieved record sales and operating income (excluding a non-cash
asset impairment charge of $235 million) for the second consecutive year,
primarily as a result of a very strong performance by the Air Conditioning
Products segment. Sales for 1996 were $5.8 billion, an increase of 11% from $5.2
billion in 1995. Operating income was $586 million, an increase of 10% from $534
million in 1995. Income before extraordinary item (excluding the asset
impairment charge) was $188.5 million, or $2.42 per share, up 33% and 27%,
respectively, from income before extraordinary item in 1995 of $142 million, or
$1.90 per share. Including the asset impairment charge, the net loss for 1996
was $46.7 million, or $.60 per share.
Effective January 1, 1996 the Company adopted FAS 121 related to
impairment of long-lived assets, resulting in a non-cash charge of $235 million,
approximately 90% of which was the write-down of goodwill, for which there was
no tax benefit (see Note 2 of Notes to Consolidated Financial Statements).
RESULTS OF OPERATIONS FOR 1996 COMPARED WITH 1995 AND 1995 COMPARED WITH 1994
Consolidated sales for 1996 were $5,805 million, an increase of $584 million, or
11% (12% excluding the unfavorable effects of changes in foreign exchange
rates), from $5,221 million in 1995. Sales increased 16% for Air Conditioning
Products and 14% for Plumbing Products, but declined 8% for Automotive Products.
Consolidated sales for 1995 were $5,221 million, an increase of 17% (15%
excluding the favorable effects of foreign exchange) from $4,457 million in
1994. Sales increased for all three segments with gains of 19% for Air
Conditioning Products, 4% for Plumbing Products and 31% for Automotive Products.
Operating income for 1996 (excluding the $235 million asset impairment
charge previously mentioned) was $586 million, an increase of $52 million, or
10% (11% excluding the unfavorable effects of foreign exchange), from $534
million in 1995. Operating income increased 36% for Air Conditioning Products
but decreased 8% for Plumbing Products and 20% for Automotive Products.
Operating income for 1995 was $534 million, an increase of $179 million,
or 50% (46% excluding the favorable effects of foreign exchange), from $355
million in 1994. Excluding $40 million of special charges from 1994, operating
income in 1995 increased 35% (31% excluding favorable foreign exchange effects)
from an adjusted operating income of $395 million in 1994. Excluding such
special charges and the favorable effects of foreign exchange, operating income
increased 38% for Air Conditioning Products and 85% for Automotive Products but
declined by 11% for Plumbing Products. Operating income for 1994 included
special charges of $40 million related to employee severance, the consolidation
of production facilities, the implementation of other cost reduction actions and
a provision for loss on the early disposition of assets. Including such special
charges in 1994, operating income increased 42% for Air Conditioning Products,
8% for Plumbing Products and 150% for Automotive Products.
15
<PAGE> 18
RESULTS OF OPERATIONS BY SEGMENT
AIR CONDITIONING PRODUCTS SEGMENT
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Year Ended December 31, (Dollars in millions)
Sales:
U.S. portion $ 2,450 $2,152 $1,915
International portion 987 801 565
------- ------ ------
Total $ 3,437 $2,953 $2,480
======= ====== ======
Operating income before asset impairment loss:
U.S. portion $ 314 $ 225 $ 180
International portion 39 34 2
------- ------ ------
Total 353 259 182
Asset impairment loss (121) -- --
------- ------ ------
Total operating income $ 232 $ 259 $ 182
======= ====== ======
</TABLE>
The U.S. portion of Air Conditioning Products is composed of the Unitary
Products Group and the North American Commercial Group (excluding Canada).
The international portion consists of the non-U.S.-based operations of the
International Group, the Canadian operations of the North American Commercial
Group and exports from the U.S. by the International Group. Export sales from
the U.S. have been reclassified to the International portion for 1995 and
1994 to conform with the 1996 classification.
Sales of Air Conditioning Products increased 16% (with little effect from
foreign exchange) to $3,437 million for 1996 from $2,953 million for 1995, as a
result of significant sales gains in the U.S. and expanding international sales.
The 1996 increase followed a gain of 19% in 1995 from $2,480 million in 1994.
Commercial markets account for approximately 75% of Air Conditioning Products'
total sales. Approximately 60% of total sales is to the replacement, renovation
and repair markets.
Operating income of Air Conditioning Products (excluding the asset
impairment charge) increased 36% to $353 million in 1996 from $259 million in
1995. The improvement was principally the result of increased operating income
in the United States due to higher sales together with cost reductions.
Operating income of Air Conditioning Products increased 42% to $259 million in
1995 from $182 million in 1994. The increase was attributable primarily to the
effects of higher volumes in both U.S. and international operations and further
reflects that 1994 included special charges of $7 million related to the
consolidation of production facilities, employee severance and other cost
reduction actions.
United States -- In 1996 U.S. sales increased 14% over those of 1995. Markets in
the U.S. continued to improve in 1996 in both replacement and new construction
for commercial and residential products. The U.S. portion of sales of commercial
products increased because of higher volume resulting from improved markets,
higher prices, gains in market share, the acquisition of additional sales
offices and a favorable shift to higher-efficiency, higher-capacity products.
Sales of residential products increased because of strong demand (particularly
in the replacement and renovation market), hot weather in some parts of the
U.S., and a favorable shift to high-end products. Operating income for the U.S.
portion of Air Conditioning Products increased 40% in 1996 compared with 1995,
as a result of the increased sales of commercial and residential products and
cost improvements.
AIR CONDITIONING 1996 Sales-$3.4 Billion
Business Mix
[PIE CHART]
<TABLE>
<S> <C>
Commercial 75%
Residential 25%
</TABLE>
Geography
[PIE CHART]
<TABLE>
<S> <C>
U.S. 71%
Europe 12%
Other 4%
Far East 13%
</TABLE>
Markets
[PIE CHART]
<TABLE>
<S> <C>
Replacement, Renovation and Repair 60%
Residential New Construction 10%
New Commercial Construction 30%
</TABLE>
Air Conditioning Products is the Company's largest business segment. The U.S.
commercial business, driven by the replacement, renovation and repair markets,
is the largest. The International business, particularly in the Far East, is the
most rapidly growing.
16
<PAGE> 19
In 1995 U.S. sales increased 12% over those of 1994. Sales of commercial
products increased because of higher volume attributable to improved markets,
accelerated demand for chiller replacement, higher prices, gains in market share
and the acquisition of additional sales offices. Sales of residential products
increased primarily from higher replacement volume, partly offset by the effect
of lower prices on certain products due to competitive market conditions.
Operating income for the U.S. portion of Air Conditioning Products increased 25%
in 1995 compared with 1994, as a result of the increased sales of commercial
products, reduced by lower operating income on residential products due to
competitive pricing pressures and increased raw material costs.
International -- International sales in 1996 increased 23% (25% excluding the
unfavorable effects of foreign exchange), principally due to sales by the new
operations in the People's Republic of China ("PRC"), expansion in other Far
East and Latin American operations and improved commercial markets in Europe.
Operating income (excluding the asset impairment charge) for international
operations in 1996 increased 15% to $39 million compared with $34 million in
1995. This reflected improved margins on chillers and modest improvements in Far
East operations and Europe, partly offset by costs of expansion, and further
reflected that 1995 included a gain on the sale of certain Hong Kong operations
in conjunction with establishing operations directly in the PRC.
International sales increased 42% in 1995, principally due to expanding
operations in the Far East and Latin America (including operations in Thailand,
Australia and Brazil which were consolidated beginning in 1995), improved
commercial markets, higher export sales (primarily to the Far East) and higher
volume in Europe. As a result of the higher sales, international operations
achieved operating income of $34 million compared with $2 million in 1994,
reflecting operating improvements achieved in Europe, improved margins on
chiller sales and the reorganization and sale of certain Hong Kong operations in
conjunction with establishing operations directly in the PRC.
Backlog -- The worldwide backlog for Air Conditioning Products as of December
31, 1996, was $601 million, essentially at the same high level as of a year
earlier (with little effect from foreign exchange) reflecting continued strong
demand for commercial products.
PLUMBING PRODUCTS SEGMENT
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Year Ended December 31, (Dollars in millions)
Sales:
International portion $ 1,072 $ 928 $ 924
U.S. portion 380 342 294
------- ------- -------
Total $ 1,452 $ 1,270 $ 1,218
======= ======= =======
Operating income (loss) before asset impairment loss:
International portion $ 88 $ 122 $ 140
U.S. portion 22 (2) (29)
------- ------- -------
Total 110 120 111
Asset impairment loss (114) -- --
------- ------- -------
Total operating income (loss) $ (4) $ 120 $ 111
======= ======= =======
</TABLE>
The international portion of Plumbing Products is composed of the European
Plumbing Products Group, the Americas International Group, the Far East Group
and export sales from the U.S. The U.S. portion is generated primarily by the
U.S. Plumbing Products Group. Export sales from the U.S. have been
reclassified to the International portion for 1995 and 1994 to conform with
the 1996 classification.
Sales of Plumbing Products increased 14% (15% excluding the unfavorable
effects of foreign exchange) to $1,452 million in 1996 from $1,270 million in
1995, primarily as a result of sales by Porcher (acquired in the fourth quarter
of 1995) and higher sales in North and Latin American and Middle Eastern
operations. Excluding Porcher and foreign exchange effects, 1996 sales were
flat, increasing 11% for U.S. operations, but declining 4% for international
operations. Sales in the U.S. increased as a result of higher volumes (primarily
in the retail market channel) and higher prices. Sales and market share in the
retail market channel have been growing in recent years, a trend the Company
believes will continue and lead to increased sales because of strong product and
brand-name recognition. The sales decline for international operations was
primarily attributable to a decrease in Europe, particularly in Germany, Italy
and France which continued to experience weak economic conditions and the
effects of a strike in the Philippines, partly offset by volume gains in Latin
American operations (primarily in Mexico) and Egypt.
17
<PAGE> 20
Sales of Plumbing Products increased 4% (with little overall effect from
foreign exchange) to $1,270 million in 1995 from $1,218 million in 1994. Sales
increased slightly for international operations, primarily attributable to
volume and price gains in Italy and to a lesser extent in Greece and the United
Kingdom ("U.K."), partly offset by lower sales in Germany, France, Canada and
Mexico as a result of weak economic conditions in those countries. Sales in the
U.S. increased 16% because of improved markets and expanded distribution through
retail market channels.
Operating income of Plumbing Products (excluding the asset impairment
charge) was $110 million for 1996 compared with $120 million for 1995, a
decrease of 8% (7% excluding the unfavorable effects of foreign exchange),
because of lower operating income for international operations, partly offset by
a solid gain in U.S. operations. The decrease in operating income for
international operations in 1996 was principally due to the aforementioned
market weakness in Europe, particularly in Germany, Italy and France and the
effects of the Philippines strike. In addition, margins in France were lower
than in the prior year due to increased costs, primarily in the newly-acquired
Porcher operations. The Company is undertaking actions to assimilate Porcher
into its European plumbing products operations and to improve operating
performance. Operating results in the U.S. improved substantially, due to higher
sales and lower-cost sourcing from expanded facilities in Mexico and
manufacturing and operating cost improvements.
Operating income of Plumbing Products was $120 million for 1995 compared
with $111 million for 1994, an increase of 8% (4% excluding foreign exchange
effects). In 1994 operating income for Plumbing Products included a provision of
$14 million related to the early disposition of certain assets and a provision
of $5 million related to employee severance and other cost reduction actions.
Excluding such provisions and the effects of foreign exchange from 1994, 1995
operating income would have decreased 11% from 1994, because of lower operating
income for international operations, partly offset by improved results in the
U.S. The decrease in operating income for international operations in 1995 was
principally due to the aforementioned market weakness in Germany, France, Canada
and Mexico, start-up expenses of new operations in the Far East, operating
difficulties in the Czech Republic and lower profitability in Brazil and Korea.
Operating results in the U.S. improved substantially, to near break even, due to
higher sales and lower-cost sourcing from expanded facilities in Mexico, partly
offset by costs related to the realignment of U.S. manufacturing operations.
Backlog -- Plumbing Products' backlog as of December 31, 1996, was $157 million,
up slightly from December 31, 1995 (with little effect from foreign exchange),
reflecting inclusion of the Porcher backlog offset partly by the effects of
continued economic weakness in Europe.
PLUMBING 1996 Sales-$1.5 Billion
Business Mix
[PIE CHART]
<TABLE>
<S> <C>
Residential 75%
Commercial 25%
</TABLE>
Geography
[PIE CHART]
<TABLE>
<S> <C>
Europe 53%
U.S. 26%
Other 13%
Far East 8%
</TABLE>
Markets
[PIE CHART]
<TABLE>
<S> <C>
Replacement and Remodeling 60%
New Construction 40%
</TABLE>
Plumbing Products is the most geographically diverse of the Company's three
businesses. The majority of its sales in Europe and the Americas are from the
replacement and remodeling markets while sales in the Far East are primarily
driven by the fast-growing new construction markets.
18
<PAGE> 21
AUTOMOTIVE PRODUCTS SEGMENT
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Year Ended December 31, (Dollars in millions)
Sales $916 $998 $759
Operating Income 123 155 62
</TABLE>
Sales of Automotive Products for 1996 were $916 million, a decrease of $82
million, or 8% (6% excluding the unfavorable effects of foreign exchange), from
$998 million in 1995, primarily because of a decline in European commercial
vehicle production as a result of market weakness and order delays at several
large customers in anticipation of new truck model introductions, partly offset
by the effect of the increased number of components per truck on new models.
After a strong first quarter, unit volume of truck and bus production in Western
Europe declined, resulting in a decrease of 9% for the full year 1996 compared
with 1995. Sales volumes were lower in all markets for commercial vehicle
braking and other control systems except in the U.K. because of the growing
utility vehicle business in that country. In Brazil, demand also decreased as
truck production declined 32% from the prior year.
Sales of Automotive Products for 1995 were $998 million, an increase of
$239 million, or 31% (20% excluding the favorable effects of foreign exchange),
from $759 million in 1994, due to higher volume, partly offset by the effects of
lower prices on electronic products. Unit volume of truck and bus production in
Western Europe and aftermarket sales improved 23% and 16%, respectively, in
1995. Sales volumes were significantly higher in all markets for commercial
vehicle braking and other control systems and in the U.K. for the growing
utility vehicle business in that country. In Brazil demand also increased, as
truck production grew 11% over the prior year.
Operating income for Automotive Products was $123 million in 1996, a
decrease of 20% (18% excluding the unfavorable effects of foreign exchange).
This decrease reflected the lower sales and start-up costs associated with new
product introductions on 1997 truck models, offset partly by productivity
improvements from the continuing implementation of manufacturing process
improvements.
Operating income for Automotive Products was $155 million in 1995, an
increase of 150% (122% excluding the favorable effects of foreign exchange).
This increase was primarily attributable to the substantially higher sales
volume as well as higher margins achieved through implementation of
manufacturing process improvements, a reduced salaried workforce, productivity
gains and other cost reduction actions. In addition, 1994 operating income
included special charges of $14 million related to employee severance and the
consolidation of production facilities.
Backlog -- Automotive Products' backlog as of December 31, 1996, was $309
million, a decrease of 9% from December 31, 1995 (excluding the unfavorable
effects of foreign exchange), reflecting the weak markets and shortened time
horizons on orders placed by certain customers.
AUTOMOTIVE 1996 Sales-$.9 Billion
Geography
[PIE CHART]
<TABLE>
<S> <C>
Europe 94%
Export and Other 6%
</TABLE>
Markets
[PIE CHART]
<TABLE>
<S> <C>
OEM Conventional 42%
Aftermarket 28%
Electronic 30%
</TABLE>
Automotive Products is primarily a European-based business manufacturing
original equipment (OEM) for most of the world's leading producers of trucks,
buses and utility vehicles. Aftermarket sales serve vehicle owners' add-on and
replacement needs. For this segment the electronic products market, including
antilock braking and electronic braking systems, is the fastest growing.
19
<PAGE> 22
FINANCIAL REVIEW
Interest expense decreased $15 million in 1996 compared with 1995 because of
reduced debt and lower overall interest rates (see "Liquidity and Capital
Resources"). Interest expense for 1995 decreased $46 million compared with 1994
because of reduced debt (due to the application of the net proceeds from the
Company's initial public offering ("IPO") in February 1995 and cash flow)
together with the effect of lower overall interest rates. Corporate items for
1996 totaled $95 million, approximately the same level as in 1995, reflecting
increased spending on development of the Company's medical diagnostics group and
increased product development costs in the Alliance Compressor joint venture,
offset by lower accretion expense on postretirement benefits and a gain on the
reorganization of the Alliance Compressor venture. Excluding from 1994 a special
charge of $20 million paid in connection with the amendment of certain
agreements in anticipation of the IPO, corporate items increased modestly in
1995 because of higher accretion expense on postretirement benefits and spending
on development of medical diagnostics, partly offset by higher equity in net
income of unconsolidated joint ventures.
The income tax provisions for 1996 and 1995 were $104 million and $85
million, respectively. The effective income tax rate in 1996 was 35.6% on pretax
income of $293 million (excluding the asset impairment charge on which there was
no tax benefit) compared with an effective rate in 1995 of 37.5% on income
before income taxes and extraordinary item of $227 million. In 1994 the income
tax provision was $62 million, despite a loss (before income taxes and
extraordinary item) of $15 million. The effective tax rates in 1996 and 1995 are
somewhat lower than the statutory rates primarily as a result of higher levels
of taxable income in the U.S. in 1996 and 1995 and expected in 1997 (which
enabled the Company to recognize previously unrecognized tax benefits) and, in
1996, from proportionately greater pretax income earned in the U.S. (at a lower
effective rate) compared to that earned in higher-rate jurisdictions in Europe
and elsewhere. Those benefits were partly offset by the effects of rate
differences and withholding taxes related to foreign operations and
nondeductible goodwill amortization. The 1994 provision reflected the taxes
payable on profitable foreign operations, while tax benefits were not available
to offset losses on U.S. operations. See Note 6 of Notes to Consolidated
Financial Statements.
As a result of the redemption of debt in 1995 and 1994 with refinancing
proceeds, those years included extraordinary charges of $30 million and $9
million, respectively, including call premiums and the write-off of unamortized
debt issuance costs, on which no tax benefits were recorded. See the following
section, "Liquidity and Capital Resources" and Note 9 of Notes to Consolidated
Financial Statements for a description of these transactions. In addition, the
first quarter of 1997 will include an extraordinary charge of $10 million as a
result of the repayment of debt under the 1995 Credit Agreement with proceeds of
the 1997 Credit Agreement.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, after cash interest paid of $140
million, was $353 million for 1996, compared with $348 million for 1995. The $5
million increase resulted primarily from higher income before extraordinary item
(excluding the non-cash asset impairment loss of $235 million) offset by the
effect of higher payments for income taxes. Average inventory turnover for 1996
improved by half a turn over the average turnover for 1995, while operating
working capital as a percentage of sales remained at 4.9%. After allowing for
$206 million of net investing activities (principally capital expenditures of
$227 million, including $15 million of investments in affiliated companies - see
"Capital Expenditures"), net cash flow used for financing activities amounted to
$175 million which was applied to the repayment of debt.
20
<PAGE> 23
In January 1997 the Company entered into a new credit agreement (the "1997
Credit Agreement"). The 1997 Credit Agreement, which expires in 2002, provides
American Standard Inc. and certain subsidiaries (the "Borrowers") with senior
secured credit facilities aggregating $1.75 billion to all Borrowers as follows:
(a) a $750 million U.S. dollar revolving credit facility and a $625 million
multi-currency revolving credit facility (the "Revolving Facilities") and (b) a
$375 million multi-currency periodic access credit facility (the "Periodic
Access Facility"). Up to $500 million of the Revolving Facilities may be used
for the issuance of letters of credit. The 1997 Credit Agreement and certain
other American Standard Inc. debt instruments contain restrictive covenants and
other requirements, with which the Company believes it is currently in
compliance. See Note 9 of Notes to Consolidated Financial Statements.
The 1997 Credit Agreement provides lower interest rates, significantly
increased borrowing capacity, less restrictive covenants and no scheduled
principal payments until maturity in 2002. The Company believes that the amounts
available from operating cash flows, funds available under its 1997 Credit
Agreement and future borrowings will be sufficient to meet its expected
operating needs and planned capital expenditures for the foreseeable future.
Obligations under the 1997 Credit Agreement are guaranteed by the Company,
American Standard Inc. and significant domestic subsidiaries of American
Standard Inc. (with foreign borrowings also guaranteed by certain foreign
subsidiaries) and are secured by a pledge of the stock of American Standard Inc.
and nearly all shares of subsidiary stock.
At December 31, 1996, the Company's total indebtedness was $1.9 billion
and, after giving effect to the 1997 Credit Agreement, annual scheduled debt
maturities were $23 million, $24 million, $164 million, $13 million and $211
million for the years 1997 through 2001, respectively. After completion of the
1997 Credit Agreement on January 31, 1997 and the Share Repurchase (as defined
below), the Company had remaining availability under the Revolving Facilities of
approximately $1.0 billion after reduction for borrowings and for $55 million of
outstanding letters of credit. In addition, at December 31, 1996, the Company's
foreign subsidiaries had $83 million available under overdraft facilities which
can be withdrawn by the banks at any time.
At December 31, 1996, the Company held swap agreements to hedge the
redemption value of a portion of its 10 1/2% senior subordinated discount
debentures and effectively converted such debt to an average fixed interest rate
of approximately 7%. The redemption value hedged by the swaps is the fair value
of the debt at the commencement of the swaps. The swaps mature in June 1998 and
have a notional debt value of $147 million. The swap providers are major
financial institutions. The Company does not anticipate non-performance by such
providers.
In December 1996, the Company, Kelso & Company, L.P. ("Kelso") and Kelso
ASI Partners, L.P. ("ASI Partners"), the Company's largest stockholder at
December 31, 1996, entered into an agreement (the "Stock Disposition Agreement")
providing for: (i) the sale by ASI Partners of 12,429,548 shares of the
Company's common stock (including 1,621,245 shares sold pursuant to the
underwriters' over-allotment option) in a secondary offering (the "Secondary
Offering"), completed in the first quarter of 1997; and (ii) the repurchase by
the Company from ASI Partners of all shares of Company common stock owned by ASI
Partners after the distribution (the "Share Distribution") by ASI Partners of
3,780,353 shares of such stock to certain of its partners at their election.
Accordingly, in conjunction with the Secondary Offering, the Company repurchased
4,628,755 shares of common stock from ASI partners for $208 million (the "Share
Repurchase"). Had the Share Repurchase occurred on January 1, 1996, it would
have had the effect on a pro forma basis of increasing earnings per share
(excluding the asset impairment loss), despite higher interest expense on the
additional borrowings, and management expects that it will increase earnings per
share in the future. After the Secondary Offering, the Share Distribution and
the Share Repurchase, ASI Partners owned no common stock of the Company and will
no longer be entitled to designate any of the Company's directors. All of the
shares sold in the Secondary Offerings were previously issued and outstanding
shares, and the Company received no proceeds therefrom (see Note 10 of Notes to
Consolidated Financial Statements).
21
<PAGE> 24
In accordance with the terms of the Stock Disposition Agreement, the
Company also issued to ASI Partners 5-year warrants to purchase 3,000,000 shares
of the Company's common stock at $55 per share (the "Exercise Price"), $10 per
share above the public offering price. The warrants entitle holders to receive
cash or shares, at the Company's option, based on the difference between the
then market value of the Company's common stock and the Exercise Price. The
warrants will be exercisable between January 31, 1998 (or October 31, 1998 in
certain cases) and February 11, 2002. In the event that a Transaction (as
defined in the Stock Disposition Agreement) constituting a change in control of
the Company occurs prior to January 31, 1998 (or October 31, 1998 for a
Transaction proposed prior to January 31, 1998 but not consummated or withdrawn
as of January 31, 1998), the Company would be required to make a cash payment to
ASI Partners based upon the excess, if any, of the consideration per share
received by holders of Company common stock in the Transaction over the $45 per
share received by ASI Partners in respect of all shares sold in the Secondary
Offering and the Share Repurchase. If a Transaction occurs entitling ASI
Partners to such a payment, the warrants would not be exercisable and would
expire upon the consummation of such Transaction.
In August 1996 the Company entered into a financial services partnership,
American Standard Financial Services, with Transamerica Commercial Finance
Corporation, a subsidiary of Transamerica Corporation, to provide a wide range
of financial services to support sales of the Company's products while reducing
cash requirements to expand its business. The partnership will offer inventory
and consumer financing, commercial leasing and asset-based lending programs,
which are expected to enhance the Company's cash flow.
The Company does not currently intend to pay dividends and is limited in
the amount it may pay under the terms of both the 1997 Credit Agreement and
certain of its publicly-traded debt securities.
In connection with an examination of the Company's German subsidiaries for
the years 1984 through 1990, the Company agreed to make a partial security
deposit of $20 million in respect of taxes and interest assessed in March 1996.
See Note 6 of Notes to Consolidated Financial Statements.
CAPITAL EXPENDITURES
The Company's capital expenditures for 1996 were $227 million compared with $207
million for 1995. The increase for 1996 related primarily to lower-cost product
sourcing, expansion of manufacturing capacity to meet market demand, expansion
and modernization of recent acquisitions, equipment for new products and the
continuing implementation of Demand Flow.
Capital expenditures for Air Conditioning Products for 1996 were $93
million, an increase of 33% over the $70 million of capital spending in 1995.
Major expenditures included expansion of the new operations in the PRC, and
projects related to the expansion of manufacturing capacity for large chillers,
implementation of Demand Flow and new products.
Plumbing Products' capital expenditures for 1996 were $88 million,
including $3 million of investments in affiliated companies, compared with
capital expenditures of $93 million in 1995 (including investments in affiliated
companies of $31 million, primarily Porcher), a decrease of 5% (1% excluding the
effects of foreign exchange). Expenditures for 1996 included expansion of
capacity in Mexico, expansion in Far East operations and implementation of
Demand Flow.
22
<PAGE> 25
Capital expenditures for Automotive Products in 1996 were $46 million,
compared with 1995 capital expenditures of $44 million, an increase of 6% (11%
excluding the effects of foreign exchange). Major projects included continued
implementation of Demand Flow and cost-reduction projects and the initial
investment in the joint venture with Cummins Engine Co. Inc.
In January 1997 the Company announced formation of its Medical Systems
Group to pursue initiatives in the medical diagnostics field. For the last
several years the Company has supported the development of two small medical
diagnostic products groups focusing on test instruments using laser technology
and reagents. The Company had invested an aggregate of approximately $40 million
in the development of these businesses through December 31, 1996, including $13
million of development expenses incurred in 1996. Based upon the progress and
prospects of those two businesses, the Company decided to explore acquisitions
to accelerate the commercialization of its technology and expand the number of
diagnostic tests covered by its products. Accordingly, on March 10, 1997 the
Company entered into definitive agreements to acquire the European medical
diagnostic business (the "Sorin Business") of Sorin Biomedica S.p.A., an
affiliate of the Fiat Group and, by means of a merger, all the outstanding
shares of Incstar Corporation ("Incstar"), a biotechnology company based in
Stillwater, Minnesota, in which Sorin Biomedica S.p.A. indirectly owned a 52%
interest. Sales in 1996 were approximately $80 million for the Sorin Business
and approximately $40 million for Incstar. The aggregate cost of the
acquisitions (the "Medical Systems Acquisitions") is expected to be
approximately $220 million, including fees and expenses, and will be funded with
borrowings under the 1997 Credit Agreement.
The Company believes capital spending in recent years has been sufficient
for maintenance purposes, important product and process redesigns, expansion
projects and strategic investments. American Standard expects to continue to
invest in the expansion and modernization of its existing facilities and
affiliated companies and to consider entering into and increasing investments in
joint ventures and making complementary acquisitions. The Company expects
capital expenditures in 1997, excluding the acquisition of the medical
diagnostic companies, will approximate $250 million.
CYCLICALITY; SEASONALITY
The preponderance of Air Conditioning Products and Plumbing Products sales are
to the replacement, remodeling, and repair markets. In 1996, only about 6% of
the Company's sales were associated with new housing in the United States and
about 12% were associated with new commercial construction in the United States,
both of which are cyclical. The Company's geographic diversity mitigates the
effects of fluctuations in individual new construction markets outside the
United States. Approximately two-thirds of Automotive Products' sales are
dependent on production levels of medium-sized and heavy trucks and buses,
particularly in Europe, which have been cyclical.
Total Company sales tend to be seasonally higher in the second and third
quarters of the year because summer is the peak season for sales of air
conditioning products and because a significant percentage of Air Conditioning
Products' sales is attributable to residential and commercial construction
activity, which is generally higher in the second and third quarters of the
year.
23
<PAGE> 26
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated balance sheet at December 31, 1996 and 1995, and
related consolidated statements of operations, stockholders' deficit and cash
flows for the years ended December 31, 1996, 1995 and 1994, have been prepared
in conformity with generally accepted accounting principles, and the Company
believes the statements set forth a fair presentation of financial condition and
results of operations. The Company believes that the accounting systems and
related controls which it maintains are sufficient to provide reasonable
assurance that the financial records are reliable for preparing financial
statements and maintaining accountability for assets. The concept of reasonable
assurance is based on the recognition that the cost of a system of internal
control must be related to the benefits derived and that the balancing of those
factors requires estimates and judgment. Reporting on the financial affairs of
the Company is the responsibility of its principal officers, subject to audit by
independent auditors who are engaged to express an opinion on the Company's
financial statements. The Board of Directors has an Audit Committee of outside
Directors which meets periodically with the Company's financial officers,
internal auditors and the independent auditors and monitors the accounting
affairs of the Company.
Emmanuel A. Kampouris
Chairman, President and
Chief Executive Officer
Fred A. Allardyce
Vice President and
Chief Financial Officer
G. Ronald Simon
Vice President and
Controller
February 13, 1997
24
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
American Standard Companies Inc.
We have audited the accompanying consolidated balance sheet of American Standard
Companies Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Standard
Companies Inc. at December 31, 1996 and 1995, and the consolidated results of
its operations and its consolidated cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the Consolidated Financial Statements, in 1996 the
Company adopted Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of.
New York, New York
February 13, 1997
25
<PAGE> 28
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
American Standard Companies Inc. 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Year Ended December 31, (Dollars in thousands, except share data)
Sales $ 5,804,561 $ 5,221,476 $ 4,457,465
------------ ------------ ------------
Costs and expenses:
Cost of sales 4,379,765 3,887,024 3,377,271
Selling and administrative expenses 905,427 853,783 778,550
Asset impairment loss 235,234 -- --
Other expense 28,337 40,489 57,381
Interest expense 198,192 213,326 259,437
------------ ------------ ------------
5,746,955 4,994,622 4,472,639
------------ ------------ ------------
Income (loss) before income taxes and extraordinary item 57,606 226,854 (15,174)
Income taxes 104,324 85,070 62,512
------------ ------------ ------------
Income (loss) before extraordinary item (46,718) 141,784 (77,686)
Extraordinary loss on retirement of debt -- (30,129) (8,735)
------------ ------------ ------------
Net income (loss) applicable to common shares $ (46,718) $ 111,655 $ (86,421)
============ ============ ============
Per common share:
Income (loss) before extraordinary item $ (.60) $ 1.90 $ (1.29)
Extraordinary loss on retirement of debt -- (.40) (.15)
------------ ------------ ------------
Net income (loss) $ (.60) $ 1.50 $ (1.44)
============ ============ ============
Average number of outstanding common shares 77,986,511 74,671,830 59,933,435
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 29
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
American Standard Companies Inc. 1996 1995
---- ----
<S> <C> <C>
At December 31, (Dollars in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 59,699 $ 88,704
Accounts receivable, less allowance for doubtful accounts - 1996, $28,294; 1995, $27,330 799,792 771,024
Inventories 408,962 362,340
Future income tax benefits 67,125 29,645
Other current assets 50,796 43,213
----------- -----------
Total current assets 1,386,374 1,294,926
Facilities, at cost, net of accumulated depreciation 1,005,998 924,492
Other assets:
Goodwill, net of accumulated amortization - 1996, $221,105; 1995, $249,410 875,111 1,081,622
Debt issuance costs, net of accumulated amortization - 1996, $13,723; 1995, $8,638 34,451 39,267
Other 217,681 179,340
----------- -----------
$ 3,519,615 $ 3,519,647
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Loans payable to banks $ 108,856 $ 240,040
Current maturities of long-term debt 72,645 72,908
Accounts payable 469,150 438,170
Accrued payrolls 151,707 171,378
Other accrued liabilities 399,152 338,138
Taxes on income 35,421 45,968
----------- -----------
Total current liabilities 1,236,931 1,306,602
Long-term debt 1,741,847 1,770,098
Other long-term liabilities:
Reserve for postretirement benefits 473,229 482,398
Deferred tax liabilities 68,157 44,761
Other 379,832 305,851
----------- -----------
Total liabilities 3,899,996 3,909,710
Commitments and contingencies
Stockholders' deficit:
Preferred stock, 2,000,000 shares authorized; none issued and outstanding
Common stock, $.01 par value, 200,000,000 shares authorized;
78,572,638 shares issued and outstanding in 1996, 76,733,010 in 1995 786 767
Capital surplus 563,873 509,218
Subscriptions receivable (395) (629)
Accumulated deficit (771,487) (724,769)
Foreign currency translation effects (173,158) (174,650)
----------- -----------
Total stockholders' deficit (380,381) (390,063)
----------- -----------
$ 3,519,615 $ 3,519,647
=========== ===========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 30
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
American Standard Companies Inc. 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Year Ended December 31, (Dollars in thousands)
Cash provided (used) by:
Operating activities:
Income (loss) before extraordinary item $ (46,718) $ 141,784 $ (77,686)
Asset impairment loss 235,234 -- --
Depreciation 117,951 109,999 122,944
Amortization of goodwill 27,580 33,396 31,472
Non-cash interest 61,794 63,930 67,837
Non-cash stock compensation 31,201 29,014 28,479
Changes in assets and liabilities:
Accounts receivable (25,479) (124,482) (69,991)
Inventories (32,499) 8,236 13,092
Accounts payable and accrued payrolls (21,356) 53,971 63,413
Postretirement benefits 19,770 33,531 21,290
Other long-term liabilities 24,455 22,419 32,795
Other, net (39,172) (24,092) 22,941
--------- ----------- ---------
Net cash provided by operating activities 352,761 347,706 256,586
--------- ----------- ---------
Investing activities:
Purchases of property, plant and equipment (212,179) (164,193) (105,741)
Investments in affiliated companies (15,321) (42,395) (23,971)
Proceeds from disposals of property, plant and equipment 15,105 19,428 14,783
Other 6,293 4,055 (2,071)
--------- ----------- ---------
Net cash used by investing activities (206,102) (183,105) (117,000)
--------- ----------- ---------
Financing activities:
Net proceeds from issuance of common stock -- 280,535 --
Minority partners' contributions to PRC venture 18,165 26,246 --
Proceeds from issuance of long-term debt 6,912 469,776 336,160
Proceeds from exercise of stock options 4,069 -- --
Repayments of long-term debt, including redemption premiums (73,429) (1,026,723) (439,762)
Net change in revolving credit facilities (106,332) 124,768 30,816
Net change in other short-term debt (13,627) (18,312) (10,044)
Common stock repurchases (10,000) (10,989) (16,927)
Financing costs and other (355) (12,466) (2,441)
--------- ----------- ---------
Net cash used by financing activities (174,597) (167,165) (102,198)
Effect of exchange rate changes on cash and cash equivalents (1,067) (1,481) 2,124
--------- ----------- ---------
Net increase (decrease) in cash and cash equivalents (29,005) (4,045) 39,512
Cash and cash equivalents at beginning of period 88,704 92,749 53,237
--------- ----------- ---------
Cash and cash equivalents at end of period $ 59,699 $ 88,704 $ 92,749
========= =========== =========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 31
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
American Standard Companies Inc.
(Dollars in thousands) Foreign
Currency
Common Capital Subscriptions ESOP Accumulated Translation
Stock Surplus Receivable Shares Deficit Effects
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 614 $ 188,369 $(2,588) $(4,331) $(750,003) $(149,220)
Net loss -- -- -- -- (86,421) --
Common stock repurchased (7) (13,244) -- -- -- --
Common stock issued 2 3,974 -- -- -- --
Payments on subscriptions -- -- 948 -- -- --
ESOP shares allocated
to employees -- 15,137 -- 4,331 -- --
Foreign currency translation -- -- -- -- -- (2,501)
----- --------- ------- ----- --------- ---------
Balance at December 31, 1994 609 194,236 (1,640) -- (836,424) (151,721)
Net income -- -- -- -- 111,655 --
Common stock repurchased -- (781) -- -- -- --
Initial public offering of
common stock 151 280,384 -- -- -- --
Other common stock issued 7 35,379 -- -- -- --
Payments on subscriptions -- -- 1,011 -- -- --
Foreign currency translation -- -- -- -- -- (22,929)
----- --------- ------- ----- --------- ---------
Balance at December 31, 1995 767 509,218 (629) -- (724,769) (174,650)
Net loss -- -- -- -- (46,718) --
Stock options exercised
including tax benefit 2 5,342
Common stock issued 17 49,313 -- -- -- --
Payments on subscriptions -- -- 234 -- -- --
Foreign currency translation -- -- -- -- -- 1,492
----- --------- ------- ----- --------- ---------
Balance at December 31, 1996 $ 786 $ 563,873 $ (395) $ -- $(771,487) $(173,158)
===== ========= ======= ===== ========= =========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE COMPANY
American Standard Companies Inc. (the "Company") is a Delaware corporation that
has as its only significant asset all the outstanding common stock of American
Standard Inc., a Delaware corporation ("American Standard Inc."). Hereinafter,
"American Standard" or "the Company" will refer to the Company, or to the
Company and American Standard Inc., including its subsidiaries, as the context
requires.
American Standard is a global manufacturer of high quality, brand-name
products in three major product groups: air conditioning systems, bathroom and
kitchen fixtures and fittings; and braking and control systems for medium-sized
and heavy trucks, buses, trailers and utility vehicles. The Company has also
recently formed a medical diagnostics group (see Note 3). Information on the
Company's operations by segment and geographic area is included on pages 14, 42
and 43 of this report.
NOTE 2. ACCOUNTING POLICIES
Financial Statement Presentation -- The consolidated financial statements
include the accounts of majority-owned subsidiaries; intercompany transactions
are eliminated. Investments in unconsolidated joint ventures are included at
cost plus the Company's equity in undistributed earnings.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. The most significant estimates included in the preparation of the
financial statements are related to postretirement benefits, income taxes,
warranties and asset lives.
Foreign Currency Translation -- Adjustments resulting from translating foreign
functional currency assets and liabilities into U.S. dollars are recorded in a
separate component of stockholders' equity. Gains or losses resulting from
transactions in other than the functional currency are reflected in the
Consolidated Statement of Operations, except for transactions which hedge net
investments in a foreign entity and intercompany transactions of a long-term
investment nature. For operations in countries that have hyper-inflationary
economies, net income includes gains and losses from translating assets and
liabilities at year-end rates of exchange, except for inventories and
facilities, which are translated at historical rates.
The losses from foreign currency transactions and translation losses in
countries with hyper-inflationary economies reflected in expense were $2.3
million in 1996, $4.5 million in 1995 and $9.9 million in 1994.
Revenue Recognition -- Sales are recorded when shipment to a customer occurs.
Cash Equivalents -- Cash equivalents include all highly liquid investments with
a maturity of three months or less when purchased.
Inventories -- Inventory costs are determined principally by the use of the
last-in, first-out (LIFO) method, and are stated at the lower of such cost or
realizable value.
Facilities -- The Company capitalizes costs, including interest during
construction, of fixed asset additions, improvements, and betterments that add
to productive capacity or extend the asset life. Maintenance and repair
expenditures are charged against income as incurred. Significant investment
grants are amortized into income over the period of benefit.
Goodwill -- Goodwill is being amortized over 40 years. Effective January 1,
1996, the Company adopted Statement of Financial Accounting Standards No. 121
("FAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. Applying the criteria established by FAS
121, the Company concluded that certain assets and related goodwill of its
Canadian, French and Mexican operating units were impaired. As a result, the
Company recorded a non-cash charge of $235 million, approximately 90% of which
was the write-down of goodwill, for which there was no tax benefit. This charge
included $121 million for Air Conditioning Products' operations in Canada and
30
<PAGE> 33
France, and $114 million for Plumbing Products' operations in Canada and Mexico.
The carrying value of goodwill for each business segment is reviewed if the
facts and circumstances, such as significant declines in sales, earnings or cash
flows or material adverse changes in the business climate, suggest that it may
be impaired. If any impairment is indicated as a result of such reviews, the
Company would measure it using techniques such as comparing the undiscounted
cash flow of the business to its book value including goodwill or by obtaining
appraisals of the related business.
Debt Issuance Costs -- The costs related to the issuance of debt are capitalized
and amortized to interest expense using the effective interest method over the
lives of the related debt.
Warranties -- The Company provides for estimated warranty costs at the time of
sale. Revenues from the sales of extended warranty contracts are deferred and
amortized on a straight-line basis over the terms of the contracts. Warranty
obligations beyond one year are included in other long-term liabilities.
Postretirement Benefits -- Postretirement pension benefits are provided for
substantially all employees of the Company, both in the United States and
abroad. In the United States the Company also provides various postretirement
health care and life insurance benefits for certain of its employees. Such
benefits are accounted for on an accrual basis using actuarial assumptions.
Depreciation -- Depreciation and amortization are computed on the straight-line
method based on the estimated useful life of the asset or asset group.
Research and Development Expenses -- Research and development costs are expensed
as incurred. The Company expended approximately $160 million in 1996, $146
million in 1995 and $140 million in 1994 for research activities and product
development and for product engineering. Expenditures for research and product
development only were $81 million, $67 million and $60 million in the respective
years. The expenditures for 1995 and 1994 have been restated to conform with the
1996 classifications of such expenditures.
Income Taxes -- Deferred income taxes are determined on the liability method,
and are recognized for all temporary differences between the tax bases of assets
and liabilities and their reported amounts in the consolidated financial
statements. No provision is made for U.S. income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested.
Advertising Expense -- The cost of advertising is expensed as incurred. The
Company incurred $88 million, $92 million and $84 million of advertising costs
in 1996, 1995 and 1994, respectively.
Earnings Per Share -- Earnings per share have been computed using the weighted
average number of common shares outstanding. The dilutive effect of options
outstanding under the Company's Stock Incentive Plan was not material.
Financial Instruments with Off-Balance-Sheet Risk -- The Company from time to
time enters into agreements to reduce its foreign currency and interest rate
risks. Gains and losses from underlying rate changes are included in income
unless the contract hedges a net investment in a foreign entity, a firm
commitment, or related debt instrument, in which case gains and losses are
deferred as a component of foreign currency translation effects in stockholders'
equity or included as a component of the transaction. See Note 9.
Stock Based Compensation -- The Company grants to employees options to acquire a
fixed number of shares of the Company's common stock with an exercise price
equal to the market value of the shares at the date of grant. The Company
accounts for stock option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees, and intends to continue this method in
the future. Accordingly, the Company recognizes no compensation expense for the
stock option grants.
NOTE 3. SUBSEQUENT EVENTS
In January 1997 the Company entered into a new credit agreement (the "1997
Credit Agreement"), an amendment and restatement of the 1995 Credit Agreement,
which provided the Company with senior secured credit facilities aggregating
$1.75 billion and which matures in 2002. The 1997 Credit Agreement provides
lower interest costs, significantly
31
<PAGE> 34
increased borrowing capacity, less restrictive covenants and no scheduled
principal payments until maturity in 2002 (see Note 9).
In the first quarter of 1997 the Company completed a secondary offering
(the "Secondary Offering") of 12,429,548 shares of the Company's common stock
and the repurchase (the "Share Repurchase") by the Company from Kelso ASI
Partners, L.P. ("ASI Partners"), the Company's largest stockholder at December
31, 1996, of 4,628,755 shares of common stock of the Company. In conjunction
with the Secondary Offering, ASI Partners distributed to certain of its
partners, 3,780,353 shares of the Company's common stock that it owns. In
addition, the Company issued to ASI Partners 5-year warrants to purchase
3,000,000 shares of the Company's common stock at $55 per share, $10 per share
over the public offering price. All of the shares sold in the Secondary Offering
were previously issued and outstanding shares, and the Company received no
proceeds therefrom (see Note 10).
In January 1997 the Company announced formation of its Medical Systems
Group to pursue initiatives in the medical diagnostics field. For the last
several years the Company has supported the development of two small medical
diagnostic products groups focusing on test instruments using laser technology
and reagents. The Company had invested an aggregate of approximately $40 million
in the development of these businesses through December 31, 1996. Based upon the
progress and prospects of those two businesses, the Company decided to explore
acquisitions to accelerate the commercialization of its technology and expand
the number of diagnostic tests covered by its products. Accordingly, on March
10, 1997 the Company entered into definitive agreements to acquire the European
medical diagnostic business (the "Sorin Business") of Sorin Biomedica S.p.A., an
affiliate of the Fiat Group and, by means of a merger, all the outstanding
shares of Incstar Corporation ("Incstar"), a biotechnology company based in
Stillwater, Minnesota, in which Sorin Biomedica S.p.A. indirectly owned a 52%
interest. Sales in 1996 were approximately $80 million for the Sorin Business
and approximately $40 million for Incstar. The aggregate cost of the
acquisitions (the "Medical Systems Acquisitions") is expected to be
approximately $220 million, including fees and expenses, and will be funded with
borrowings under the 1997 Credit Agreement.
NOTE 4. OTHER EXPENSE
Other income (expense) was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Year Ended December 31, (Dollars in millions)
<S> <C> <C> <C>
Interest income $ 6.2 $ 8.9 $ 8.2
Royalties 3.3 4.1 3.5
Equity in net income
of unconsolidated
joint ventures 2.6 7.1 4.0
Minority interest (11.7) (12.2) (13.3)
Accretion expense (29.3) (36.5) (26.1)
Other, net .6 (11.9) (33.7)
$ (28.3) $ (40.5) $ (57.4)
</TABLE>
NOTE 5. POSTRETIREMENT BENEFITS
The Company sponsors postretirement pension benefit plans covering substantially
all employees, including an Employee Stock Ownership Plan (the "ESOP") for the
Company's U.S. salaried employees and certain U.S. hourly employees. The ESOP is
an individual account, defined contribution plan. Shares of common stock of the
ESOP are allocated to the accounts of eligible employees (primarily through
basic allocations of 3% of covered compensation and a matching Company
contribution of up to 6% of covered compensation invested in the Company's
401(k) savings plan by employees). The Company funds basic and matching
allocations to the ESOP accounts through weekly contributions of shares of the
Company's common stock based upon the closing price each Friday for shares of
the Company's common stock quoted on the New York Stock Exchange. The Company
intends to fund the ESOP in future years through contributions of cash or shares
of the Company's common stock.
Benefits under defined benefit pension plans on a worldwide basis are
generally based on years of service and employees' compensation during the last
years of employment. In the United States the Company also provides various
postretirement health care and life insurance benefits for certain of its
employees. Funding decisions are based upon the tax and statutory considerations
in each country. Accretion expense is the implicit interest cost associated with
amounts accrued and not funded and is included in "other expense". At December
31, 1996, funded plan assets related to pensions were held primarily in fixed
income and equity funds. Postretirement health and life insurance benefits are
funded as incurred.
32
<PAGE> 35
The Company's postretirement plans' funded status and
amounts recognized in the balance sheet at December 31,
1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1996 1996 1995 1995 1995
- ----------------------------------------------------- ----------- ------------ ---------- ----------- ----------- ----------
(Dollars in millions) Assets in Accumulated Assets in Accumulated
Excess of Benefit Health and Excess of Benefit Health and
Accumulated Obligations Life Accumulated Obligations Life
Benefit in Excess of Insurance Benefit in Excess Insurance
Obligations Assets Benefits Obligations of Assets Benefits
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested $136.8 $604.3 $ -- $124.8 $613.5 $ --
Non-vested 5.5 43.9 -- 2.6 44.2 --
----------- ------------ ---------- ----------- ----------- ----------
Accumulated benefit obligations 142.3 648.2 -- 127.4 657.7 --
Additional amounts related to projected pay increases 24.6 41.4 -- 25.9 39.4 --
----------- ------------ ---------- ----------- ----------- ----------
Total projected benefit obligations 166.9 689.6 179.1 153.3 697.1 186.9
----------- ------------ ---------- ----------- ----------- ----------
Assets and book reserves relating to such benefits:
Market value of funded assets 208.2 343.4 -- 184.7 325.9 --
Reserve (asset) for postretirement benefits net of
recognized overfunding (42.3) 362.6 165.7 (39.6) 361.3 161.0
Additional minimum liability -- -- -- -- 9.7 --
----------- ------------ ---------- ----------- ----------- ----------
165.9 706.0 165.7 145.1 696.9 161.0
----------- ------------ ---------- ----------- ----------- ----------
Assets and book reserves in excess of (less than)
projected benefit obligations $ (1.0) $ 16.4 $(13.4) $ (8.2) $ (.2) $(25.9)
=========== ============ ========== =========== =========== ==========
Consisting of:
Unrecognized prior services benefit (cost) $ (8.4) $(24.2) $ 7.2 $ (9.7) $ (5.8) $ 9.8
Unrecognized net gain (loss) from changes in
actuarial assumptions and experience 7.4 40.6 (20.6) 1.5 5.6 (35.7)
----------- ------------ ---------- ----------- ----------- ----------
$ (1.0) $ 16.4 $(13.4) $ (8.2) $ (.2) $(25.9)
=========== ============ ========== =========== =========== ==========
</TABLE>
At December 31, 1996, the projected benefit obligation related to health
and life insurance benefits for active employees was $68.0 million and for
retirees was $111.1 million.
For certain plans, the additional minimum liability recorded in 1995 by the
Company as part of its reserve for postretirement benefits was $9.7 million at
December 31, 1995, (none in 1996). The additional minimum liability is the
excess of the accumulated benefit obligation over plan assets and accumulated
benefit provisions. In connection with providing for the additional minimum
liability, an intangible asset was recorded, to the extent of unrecognized prior
service costs, which amounted to $9.7 million at December 31, 1995.
33
<PAGE> 36
The projected benefit obligation for postretirement bene-
fits was determined using the following assumptions:
<TABLE>
<CAPTION>
1996 1996 1995 1995
Domestic Foreign Domestic Foreign
-------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Discount rate 7.50% 4.25%-8.00% 7.00% 4.25%-8.25%
Long-term rate of inflation 2.80% .05%-3.80% 2.80% 1.55%-5.05%
Merit and promotion increase 1.70% 1.70% 1.70% 1.70%
Rate of return on plan assets 9.00% 4.50%-8.25% 9.00% 6.00%-9.50%
</TABLE>
The weighted-average annual assumed rate of increase in the health care
cost trend rate is 7% for 1997 and is assumed to decrease gradually to 5% for
1999 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example, a
change in the assumed rate of one percentage point for each future year would
change the accumulated postretirement benefit obligation as of December 31,
1996, by $14.4 million and the annual postretirement cost by $2.0 million.
Total postretirement costs were:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
Year Ended December 31, (Dollars in millions)
<S> <C> <C> <C>
Pension benefits $ 41.7 $ 48.3 $ 35.9
Health and life
insurance benefits 17.4 15.5 16.3
------- -------- --------
Defined benefit plan cost 59.1 63.8 52.2
Defined contribution
plan cost, principally ESOP 31.2 27.4 24.7
------- -------- --------
Total postretirement cost,
including accretion expense $ 90.3 $ 91.2 $ 76.9
======= ======== ========
</TABLE>
Postretirement cost had the following components:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994 1994
Year Ended December 31, (Dollars in millions) Health & Health & Health &
Pension Life Ins. Pension Life Ins. Pension Life Ins.
Benefits Benefits Benefits Benefits Benefits Benefits
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned during the period $ 24.5 $ 4.7 $ 24.6 $ 3.3 $ 23.6 $ 3.8
Interest cost on the projected benefit obligation 55.6 12.5 58.1 12.8 47.0 12.3
Less assumed return on plan assets:
Actual loss (return) on plan assets (64.0) -- (107.1) -- 13.0 --
Excess (shortfall) deferred 22.7 -- 69.7 -- (49.5) --
-------- --------- -------- --------- -------- ---------
(41.3) -- (37.4) -- (36.5) --
Other, including amortization of prior service cost 2.9 .2 3.0 (.6) 1.8 .2
-------- --------- -------- --------- -------- ---------
Defined benefit plan cost $ 41.7 $ 17.4 $ 48.3 $ 15.5 $ 35.9 $ 16.3
======== ========= ======== ========= ======== =========
Accretion expense reclassified to "other expense" $ 16.8 $ 12.5 $ 23.7 $ 12.8 $ 13.8 $ 12.3
======== ========= ======== ========= ======== =========
</TABLE>
34
<PAGE> 37
NOTE 6. INCOME TAXES
The Company's income (loss) before income taxes and extraordinary item, and the
applicable provision (benefit) for income taxes were:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Year Ended December 31, (Dollars in millions)
Income (loss) before income taxes
and extraordinary item:
Domestic $ 162.6 $ -- $(157.0)
Foreign (105.0)(a) 226.9 141.8
------- ------ -------
Pre-tax income (loss) $ 57.6 $226.9 $ (15.2)
======= ====== =======
Provision (benefit) for income taxes:
Current:
Domestic $ 48.2 $ 15.7 $ 10.5
Foreign 70.2 69.6 57.7
------- ------ -------
118.4 85.3 68.2
Deferred:
Domestic (4.2) (7.3) .8
Foreign (9.9) 7.1 (6.5)
------- ------ -------
(14.1) (.2) (5.7)
------- ------ -------
Total provision $ 104.3 $ 85.1 $ 62.5
======= ====== =======
</TABLE>
(a) Includes asset impairment loss of $235 million.
A reconciliation between the actual income tax expense provided and the
income taxes computed by applying the statutory federal income tax rate of 35%
in 1996, 1995 and 1994 to the income (loss) before income taxes and
extraordinary item is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Year Ended December 31, (Dollars in millions)
Tax provision (benefit)
at statutory rate $ 20.2 $ 79.4 $ (5.3)
Nondeductible asset
impairment loss 82.3 -- --
Rate differences and
withholding taxes related
to foreign operations 5.5 19.2 47.1
Nondeductible goodwill
amortization 8.3 11.9 10.0
State tax provision (benefit) 1.3 (.5) (5.3)
Nondeductible ESOP
allocations -- 3.5 6.8
Foreign exchange gain (loss) (.6) 1.2 (4.3)
Increase (decrease) in
valuation allowance (13.0) (31.3) 21.4
Other, net .3 1.7 (7.9)
------ ------ ------
Total provision $104.3 $ 85.1 $ 62.5
====== ====== ======
</TABLE>
The decrease in the valuation allowance in 1996 of $13 million was net of a
$10.8 million valuation allowance provided on future tax benefits on certain
foreign operations. In addition to the 1995 valuation allowance decrease of
$31.3 million and the 1994 valuation allowance increase of $21.4 million shown
above, valuation allowances of $10.5 million in 1995 and $3.2 million in 1994
were provided for the tax benefits related to the extraordinary losses on
retirement of debt (see Note 9).
The following table details the gross deferred tax liabilities and assets
and the related valuation allowances:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
At December 31, (Dollars in millions)
Deferred tax liabilities:
Facilities (accelerated depreciation,
capitalized interest and purchase
accounting differences) $127.3 $138.8
Inventory (LIFO and purchase
accounting differences) 1.0 10.3
Employee benefits 8.1 3.5
Foreign investments 50.1 50.1
Other 37.9 44.8
------ ------
224.4 247.5
------ ------
Deferred tax assets:
Postretirement benefits 134.1 132.7
Warranties 61.1 53.8
Alternative minimum tax 4.7 16.7
Foreign tax credits and
net operating losses 45.2 34.4
Reserves 54.8 69.5
Other 8.5 23.3
Valuation allowances (85.0) (98.0)
------ ------
223.4 232.4
------ ------
Net deferred tax liabilities $ 1.0 $ 15.1
------ ------
</TABLE>
Deferred tax assets related to foreign tax credits, net operating loss
carryforwards and future tax deductions have been reduced by a valuation
allowance since realization is dependent in part on the generation of future
foreign source income as well as on income in the legal entity which gave rise
to tax losses. Other deferred tax assets have not been reduced by valuation
allowances because of carrybacks and existing deferred tax credits which reverse
in the carryforward period.
35
<PAGE> 38
In 1995 and 1996 the valuation allowance was reduced as a result of the reversal
of existing deferred tax benefits and higher levels of taxable income in the
U.S. in 1995, 1996 and expected in 1997. Although realization is not assured,
management believes it is more likely than not that all of the resulting net
deferred tax assets will be realized. The amount of the net deferred tax assets
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced. The foreign
tax credits and net operating losses are available for utilization in future
years. In some tax jurisdictions the carryforward period is limited to as little
as five years; in others it is unlimited.
As a result of the allocation of purchase accounting (principally goodwill)
to foreign subsidiaries, the book basis in the net assets of the foreign
subsidiaries exceeds the related U.S. tax basis in the subsidiaries' stock. Such
investments are considered permanent in duration, and accordingly no deferred
taxes have been provided on such differences, which are significant. It is
impracticable because of the complex legal structure of the Company and the
numerous tax jurisdictions in which the Company operates to determine such
deferred taxes.
Cash taxes paid were $135 million, $90 million, and $70 million in the
years 1996, 1995 and 1994, respectively.
In connection with examinations of the tax returns of the Company's German
subsidiaries for the years 1984 through 1990, the German tax authorities have
raised questions regarding the treatment of certain significant matters. In
prior years the Company paid approximately $20 million (at December 31, 1996
exchange rates) of a disputed German income tax. A suit is pending to obtain a
refund of this tax. In March 1996 the Company received an assessment, which it
has appealed, for additional taxes of approximately $71 million (at December 31,
1996 exchange rates) (principally relating to the 1988 to 1990 period), plus
interest, for the tax return years under audit. In addition, significant
transactions similar to those which gave rise to such assessment occurred in
years subsequent to 1990. Having assessed additional taxes for the 1988-1990
period, the German tax authorities might, after future tax audits, propose tax
adjustments for years 1991 to 1993 that could be as much as 50% higher. The
Company, on the basis of the opinion of legal counsel, believes the German tax
returns are substantially correct as filed and any such adjustments would be
inappropriate and intends to vigorously contest any adjustments which have been
or may be assessed. Accordingly, the Company has not recorded any loss
contingency at December 31, 1996 with respect to such matters.
The Company has agreed with the German tax authorities to make a partial
security deposit in respect of the additional taxes and interest assessed in
March 1996. Approximately $13 million was paid in January 1997 and, in addition,
the Company will apply approximately $7 million of tax refunds due it to the
security deposit. The tax authorities have granted a staying order for the
balance of the additional taxes and interest assessed in March 1996, under which
no further payment or other security will be required from the Company before
litigation of the matter or a final resolution. During litigation, the Company
would expect renewal of the staying order. Upon final resolution, the Company
will be obligated to pay any tax liability in excess of the security deposit or
the Company will receive a refund of any excess of security deposit (with
interest accruing on the additional tax from the date of the assessment or the
refund amount from the date of deposit, respectively).
As a result of German tax legislation, first effective in 1994, the
Company's tax provision in Germany was higher in 1994, 1995 and 1996 and will
continue to be in the future. As a result of this German tax legislation and the
related additional tax provisions, the Company believes its tax exposure to the
major issues under the audit referred to above will be reduced starting in 1994
and continuing thereafter.
36
<PAGE> 39
NOTE 7. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
At December 31, (Dollars in millions)
<S> <C> <C>
Finished products $235.8 $190.7
Products in process 77.7 84.7
Raw materials 95.5 86.9
------ ------
Inventories at cost $409.0 $362.3
====== ======
</TABLE>
The carrying cost of inventories approximates current cost.
NOTE 8. FACILITIES
The components of facilities, at cost, are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
At December 31, (Dollars in millions)
<S> <C> <C>
Land $ 79.0 $ 74.3
Buildings 382.3 356.3
Machinery and Equipment 971.0 888.3
Improvements in progress 150.2 119.2
-------- --------
Gross facilities 1,582.5 1,438.1
Less: accumulated depreciation 576.5 513.6
-------- --------
Net facilities $1,006.0 $ 924.5
======== ========
</TABLE>
NOTE 9. DEBT
In January 1997, the Company entered into the 1997 Credit Agreement, an
amendment and restatement of the 1995 Credit Agreement. The 1997 Credit
Agreement, which expires in 2002, provides American Standard Inc. and certain
subsidiaries (the "Borrowers") with senior secured credit facilities aggregating
$1.75 billion to all Borrowers as follows: (a) a $750 million U.S. dollar
revolving credit facility and a $625 million multi-currency revolving credit
facility (the "Revolving Facilities") and (b) a $375 million multi-currency
periodic access credit facility (the "Periodic Access Facility").
The 1997 Credit Agreement provides lower interest rates, significantly
increased borrowing capacity, less restrictive covenants and no scheduled
principal payments until maturity in 2002. Each of the outstanding revolving
loans is due at the end of each interest period (a maximum of six months). The
Company may, however, concurrently reborrow the outstanding obligations subject
to compliance with applicable conditions of the 1997 Credit Agreement.
Borrowings under the Revolving Facilities and the Periodic Access Facility bear
interest at the London interbank offered rate ("LIBOR") plus 0.875% which is
.375% lower than rates under the 1995 Credit Agreement. This initial rate is
subject to adjustment and may be reduced in the event the Company attains
improved financial ratios.
After giving effect to the 1997 Credit Agreement, the amounts of long-term
debt maturing in years 1997 through 2001 were: 1997-$23 million; 1998-$24
million; 1999-$164 million; 2000-$13 million; and 2001-$211 million.
As a result of the redemption of debt in 1995 and 1994, the Consolidated
Statement of Operations included extraordinary charges of $30 million and $9
million, respectively (including call premiums and the write-off of deferred
debt issuance costs, on which no tax benefit was recorded (see Note 6). In
addition, the first quarter of 1997 will include an extraordinary charge of $10
million as a result of the repayment of debt under the 1995 Credit Agreement.
Short-term -- At December 31, 1996, there were $67 million of short-term
borrowings outstanding and $56 million of letters of credit outstanding under
the 1995 Credit Agreement. Average borrowings under the revolving credit
facilities available under bank credit agreements for 1996, 1995 and 1994 were
$215 million, $278 million and $73 million, respectively.
The Revolving Facilities under the 1997 Credit Agreement provide for
aggregate borrowings of up to $1.375 billion for general corporate purposes, of
which up to $500 million may be used for the issuance of letters of credit and
$40 million of which is available for same-day short-term borrowings. The
Company pays a commitment fee of 0.20% per annum on the unused portion of the
Revolving Facilities and a fee of 0.875% per annum plus issuance fees for
letters of credit. Upon completion of the 1997 Credit Agreement in January 1997
(proceeds of which replaced outstanding borrowings under the 1995 Credit
Agreement) and the Share Repurchase for $208 million in February 1997 (see Notes
3 and 10), there were $323 million of borrowings outstanding under the
37
<PAGE> 40
Revolving Facilities and $55 million of letters of credit. Remaining
availability under the Revolving Facilities was $997 million, which is available
to provide financing for the Medical Systems Acquisitions (see Note 3), to
redeem certain outstanding public debt securities of American Standard Inc. and
for other general corporate purposes. Borrowings under the Revolving Facilities
by their terms are short-term.
Other short-term borrowings are available outside the United States under
informal credit facilities and are typically in the form of overdrafts. At
December 31, 1996, the Company had $42 million of such foreign short-term debt
outstanding at an average interest rate of 10.6% per annum. The Company also had
an additional $83 million of unused foreign facilities. These facilities may be
withdrawn by the banks at any time.
Average short-term borrowings for 1996, 1995 and 1994 were $284 million,
$334 million and $119 million, respectively, at weighted average interest rates
of 7.33%, 7.85% and 9.40%, respectively. Total short-term borrowings outstanding
at December 31, 1996, 1995 and 1994 were $109 million, $240 million, and $70
million, respectively, at weighted average interest rates of 7.5%, 7.9% and
10.7%, respectively.
Long-term -- Long-term debt was as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
At December 31, (Dollars in millions)
1995 Credit Agreements $ 363.6 $ 432.1
9 1/4% sinking fund debentures, due in
installments from 1997 to 2016 150.0 150.0
10 7/8% senior notes due 1999 150.0 150.0
11 3/8% senior debentures due 2004 250.0 250.0
9 7/8% senior subordinated notes due 2001 200.0 200.0
10 1/2% senior subordinated discount
debentures (net of unamortized
discount of $77.5 million in 1996;
$162.2 million in 1995) due in
installments from 2003 to 2005 633.1 578.5
Other long-term debt 67.7 82.4
-------- --------
1,814.4 1,843.0
Less current maturities 72.6 72.9
-------- --------
$1,741.8 $1,770.1
======== ========
</TABLE>
Interest costs capitalized as part of the cost of constructing facilities
for the years ended December 31, 1996, 1995, and 1994, were $3.9 million, $4.0
million and $2.9 million, respectively. Cash interest paid for those same years
on all outstanding indebtedness amounted to $140 million, $161 million and $186
million, respectively.
The U.S. Dollar equivalent of the 1995 Credit Agreement loans and the
effective weighted average interest rates were:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
At December 31, (Dollars in millions)
Periodic access loans:
Deutschemark loans at 4.56%
in 1996; 5.39% in 1995 $263.7 $282.5
------ ------
British sterling loans at 7.44%
in 1996; 8.23% in 1995 5.1 34.8
Dutch guilder loans at 4.31%
in 1996; 5.23% in 1995 24.8 24.8
------ ------
Total periodic access loans 293.6 342.1
Term loans:
U.S. dollar loans at 6.63%
in 1996; 6.91% in 1995 70.0 90.0
------ ------
Total 1995 Credit Agreement
long-term loans 363.6 432.1
Revolver loans at 5.6% in 1996;
6.9% in 1995 67.2 179.8
------ ------
Total 1995 Credit Agreement loans $430.8 $611.9
====== ======
</TABLE>
The 9 1/4% Sinking Fund Debentures are redeemable at the Company's option,
in whole or in part, at redemption prices declining from 104.163% in 1997 to
100% in 2006 and thereafter. The 10 7/8% Senior Notes are not redeemable by the
Company. The 11 3/8% Senior Debentures are redeemable at the option of the
Company, in whole or in part, on or after May 15, 1997, at redemption prices
declining from 105.69% in 1997 to 100% on May 15, 2002, and thereafter.
38
<PAGE> 41
The 9 7/8% Senior Subordinated Notes may be redeemed at the Company's
option, in whole or in part, on or after June 1, 1998, at redemption prices
declining from 102.82% in 1998 to 100% on June 1, 2000, and thereafter. The 10
1/2% Senior Subordinated Discount Debentures may be redeemed at the Company's
option, in whole or in part, on or after June 1, 1998, at redemption prices
declining from 104.66% in 1998 to 100% on June 1, 2002, and thereafter. The
payment of the principal and interest on the 9 7/8% Senior Subordinated Notes
and on the 10 1/2% Senior Subordinated Discount Debentures (together the "Senior
Subordinated Debt") is subordinated in right of payment to the payment when due
of all Senior Debt (as defined in the related indenture) of the Company,
including all indebtedness under the credit agreements, the 9 1/4% Sinking Fund
Debentures, the 10 7/8% Senior Notes, and the 11 3/8% Senior Debentures (the
said notes and debentures together the "Senior Securities").
At December 31, 1996, the Company held swap agreements to hedge the
redemption value of a portion of its 10 1/2% Senior Subordinated Discount
Debenture and effectively converted such debt to an average fixed interest rate
of approximately 7%. The redemption value hedged by the swaps is the fair value
of the debt at the commencement of the swaps. The swaps mature in June 1998 and
have a notional debt value of $147 million, which approximates their fair value
as of December 31, 1996. The swap providers are major financial institutions and
the Company does not anticipate non-performance by such providers.
Obligations under the 1997 Credit Agreement are guaranteed by the Company,
American Standard Inc. and significant domestic subsidiaries of American
Standard Inc. (with foreign borrowings also guaranteed by certain foreign
subsidiaries) and are secured by a pledge of the stock of American Standard Inc.
and its subsidiaries.
The 1997 Credit Agreement contains various covenants that limit, among
other things, mergers and asset sales, indebtedness, dividends on and redemption
of capital stock of the Company, voluntary prepayment of certain other
indebtedness of the Company (including its outstanding debentures and notes),
rental expense, liens, capital expenditures, investments or acquisitions, the
use of proceeds from asset sales, intercompany transactions and transactions
with affiliates and certain other business activities. The covenants also
require the Company to meet certain financial tests. The Company believes it is
currently in compliance with the covenants contained in the 1997 Credit
Agreement.
The indentures related to the Company's debentures and notes contain
various covenants which, among other things, limit debt and preferred stock of
the Company and its subsidiaries, dividends on and redemption of capital stock
of the Company and its subsidiaries, redemption of certain subordinated
obligations of the Company, the use of proceeds from asset sales and certain
other business activities. The Company believes it is currently in compliance
with the covenants of those indentures.
NOTE 10. CAPITAL STOCK
In the first quarter of 1995 American Standard Companies Inc. sold 15,112,300
shares of its common stock at $20 per share in its initial public offering (the
"IPO"), which yielded net proceeds of $281 million (including proceeds from the
exercised portion of the underwriters' over-allotment option and after deducting
underwriting discounts and expenses) which were used to reduce indebtedness.
The Company, Kelso & Company, L.P. ("Kelso") and ASI Partners entered into
an agreement (the "Stock Disposition Agreement") providing for: (i) the sale by
ASI Partners of 12,429,548 shares of the Company's common stock (including
1,621,245 shares sold pursuant to the underwriters' over allotment option) in
the Secondary Offering completed in the first quarter of 1997; and (ii) the
repurchase by the Company from ASI Partners of all shares of Company common
stock to be owned by ASI Partners after the distribution (the "Share
Distribution") by ASI Partners of 3,780,353 shares of such stock to certain of
its partners at their election. Accordingly, in conjunction with the Secondary
Offering, the Company repurchased 4,628,755 shares of common stock from ASI
partners for $208 million (the "Share Repurchase"). The Company financed the
Share Repurchase with borrowings under the 1997 Credit Agreement. The Company
had previously completed a secondary offering in September 1995 (together with
the Secondary Offering, the "Secondary Offerings") for
39
<PAGE> 42
22,500,000 shares of its common stock, substantially all of which were owned by
ASI Partners. After the Secondary Offerings, the Share Distribution and the
Share Repurchase, ASI Partners will own no common stock of the Company and will
not be entitled to designate any of the Company's directors. All of the shares
sold in the Secondary Offerings were previously issued and outstanding shares,
and the Company received no proceeds therefrom.
In accordance with the Stock Disposition Agreement, the Company also issued
to ASI Partners 5-year warrants to purchase 3,000,000 shares of common stock of
the Company at $55 per share (the "Exercise Price"), $10 per share over the
public offering price. The warrants entitle holders to receive cash or shares,
at the Company's option, based on the difference between the then market value
of the Company's common stock and the Exercise Price. The warrants will be
exercisable between January 31, 1998 (or October 31, 1998 in certain cases) and
February 11, 2002. In the event that a Transaction (as defined in the Stock
Disposition Agreement) constituting a change in control of the Company occurs
prior to January 31, 1998 (or October 31, 1998 for a Transaction proposed prior
to January 31, 1998 but not consummated or withdrawn as of January 31, 1998),
the Company would be required to make a cash payment to ASI Partners based upon
the excess, if any, of the consideration per share received by holders of
Company common stock in the Transaction over the cash price per share received
by ASI Partners in respect of all shares sold in the Secondary Offering and the
Share Repurchase. If a Transaction occurs entitling ASI Partners to such a
payment, the warrants would not be exercisable and would expire upon the
consummation of such Transaction. The estimated fair value of these warrants at
the date issued was $9.34 per share using a Black-Scholes option pricing model
and assumptions similar to those used for valuing the Company's stock options as
described below.
In January 1995 the Company adopted a Restated Certificate of
Incorporation, Amended By-laws and a Stockholder Rights Agreement. The Restated
Certificate of Incorporation authorizes the Company to issue up to 200,000,000
shares of common stock, par value $.01 per share and 2,000,000 shares of
preferred stock, par value $.01 per share of which the Board of Directors
designated 900,000 shares as a new series of Junior Participating Cumulative
Preferred Stock. Each outstanding share of common stock has associated with it
one right to purchase a specified amount of Junior Participating Cumulative
Preferred Stock at a stipulated price in certain circumstances relating to
changes in the ownership of the common stock of the Company.
In January 1995 the Company established the Stock Incentive Plan (the
"Stock Plan") under which awards may be granted to officers and other key
executives and employees in the form of stock options, stock appreciation
rights, restricted stock or restricted units. The maximum number of shares or
units that may be issued under the Stock Plan is 7,604,475. The awards vest
ratably over three years on the anniversary date of the awards and are
exercisable over a period of ten years.
40
<PAGE> 43
A summary of stock option activity and related information for 1996 and
1995 follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995
---------- ---------- ---------- ----------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding-beginning of year 4,974,000 $ 20.01 -- --
Granted 18,000 32.66 5,006,000 $ 20.01
Exercised (230,483) 20.00 -- --
Forfeited (60,343) 20.00 (32,000) 20.00
---------- ---------- ---------- ----------
Outstanding-end of year 4,701,174 $ 20.06 4,974,000 $ 20.01
========== ========== ========== ==========
Exercisable at end of year 1,422,539 $ 20.01 -- --
Weighted average fair value of options granted during the year $ 12.26 $ 7.51
</TABLE>
Exercise prices for options outstanding as of December 31, 1996, ranged
from $20 to $37.94. The weighted-average remaining contractual life of those
options is 8.4 years. As of December 31, 1996, there were 2,672,818 shares
available for grant under the plan.
The Company has elected to follow APB 25 and related interpretations in
accounting for stock options and accordingly has recognized no compensation
expense. Had compensation cost been determined based upon the fair value at the
grant date for awards consistent with the methodology prescribed by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
the Company's net loss and net loss per share would have increased by $8.2
million and $.10 per share, respectively, in 1996 and decreased net income and
net income per share by $7.4 million and $.10 per share, respectively, in 1995.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for both 1996
and 1995: risk-free interest rate of 6.3%; volatility of 23%; an expected life
of 6 years; and a dividend yield of zero. These estimated expense amounts are
not necessarily indicative of amounts in years beyond 1997 because they are
heavily influenced by the large number of options granted in 1995 in connection
with the IPO which fully vest at the beginning of 1998.
NOTE 11. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments at December 31, 1996,
approximates carrying amounts except as follows:
<TABLE>
<CAPTION>
-------- -----
(Dollars in millions) Carrying Fair
Amount Value
<S> <C> <C>
10 7/8% senior notes $150 $161
11 3/8% senior debentures 250 268
9 7/8% senior subordinated notes 200 211
10 1/2% senior subordinated
discount debentures 633 694
9 1/4% sinking fund debentures 150 156
</TABLE>
The fair values presented above are estimates as of December 31, 1996, and
are not necessarily indicative of amounts for which the Company could settle
currently or indicative of the intent or ability of the Company to dispose of or
liquidate such instruments.
41
<PAGE> 44
The fair values of the Company's 1995 Credit Agreement loans, which
approximate their carrying values, are estimated using indicative market quotes
obtained from a major bank. The fair values of senior notes, senior debentures,
senior subordinated notes, senior subordinated discount debentures and sinking
fund debentures are based on indicative market quotes obtained from a major
securities dealer. The fair values of other loans approximate their carrying
value.
NOTE 12. RELATED PARTY TRANSACTIONS
In 1994 the Company paid Kelso, an affiliate of ASI Partners, the Company's
largest shareholder, an annual fee of $2.75 million for providing management
consulting and advisory services. In December 1994 the Company paid Kelso a
one-time fee of $20 million in connection with the amendment of certain
agreements in anticipation of the Company's IPO, including an amendment
eliminating future payments of the $2.75 million annual fee but providing for
the continuation of such services. See Notes 3 and 10.
NOTE 13. COMMITMENTS AND CONTINGENCIES
Future minimum rental commitments under the terms of all noncancellable
operating leases in effect at December 31, 1996, were: 1997 - $62 million; 1998
- - $55 million; 1999- $38 million; 2000 - $28 million; 2001 - $23 million and
thereafter - $44 million. Net rental expenses for operating leases were $70
million, $59 million and $45 million for the years ended December 31, 1996,
1995, and 1994, respectively.
The Company and certain of its subsidiaries are parties to a number of
pending legal and tax proceedings. The Company is also subject to federal, state
and local environmental laws and regulations and is involved in environmental
proceedings concerning the investigation and remediation of numerous sites. In
those instances where it is probable as a result of such proceedings that the
Company will incur costs which can be reasonably determined, the Company has
recorded a liability. The Company believes that these legal, tax and
environmental proceedings will not have a material adverse effect on its
consolidated financial position, cash flows or results of operations.
The tax returns of the Company's German subsidiaries are currently under
examination by the German tax authorities (see Note 6).
NOTE 14. SEGMENT DATA
Identifiable assets as of December 31, 1996, 1995 and 1994 and sales and
operating income by geographic location for the years then ended are shown in
the following tables. Sales and operating income by segment are shown in the
Segment Data section of the Five Year Financial Summary on page 14.
42
<PAGE> 45
<TABLE>
<CAPTION>
Segment Data 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, (Dollars in millions)
Sales-Geographic distribution:
United States $ 2,856 $ 2,526 $ 2,238 $ 1,914 $ 1,722
Europe 2,050 1,951 1,600 1,371 1,622
Other 1,041 860 714 617 519
Eliminations (142) (116) (95) (72) (71)
------- ------- ------- ------- -------
Total sales (c) $ 5,805 $ 5,221 $ 4,457 $ 3,830 $ 3,792
======= ======= ======= ======= =======
Operating income-Geographic distribution:
United States $ 336 $ 223 $ 151 $ 104 $ 82
Europe 102 242 147 130 185
Other (87) 69 57 48 33
------- ------- ------- ------- -------
Total operating income (c) $ 351(a) $ 534 $ 355 $ 282 $ 300
======= ======= ======= ======= =======
Assets
Air Conditioning Products $ 1,480 $ 1,432 $ 1,223 $ 1,167 $ 1,156
Plumbing Products 775 1,088 957 960 1,002
Automotive Products 1,066 805 755 652 722
------- ------- ------- ------- -------
Total identifiable assets $ 3,321 $ 3,325 $ 2,935 $ 2,779 $ 2,880
======= ======= ======= ======= =======
Geographic distribution:
United States $ 1,180 $ 1,075 $ 1,025 $ 1,013 $ 1,016
Europe 1,460 1,557 1,343 1,196 1,370
Other 681 693 567 570 494
------- ------- ------- ------- -------
Total identifiable assets 3,321 3,325 2,935 2,779 2,880
Prepaid charges 34 39 64 78 51
Future income tax benefits 67 30 22 25 33
Cash and cash equivalents 60 89 93 53 113
Corporate assets 38 37 42 52 49
------- ------- ------- ------- -------
Total assets $ 3,520 $ 3,520 $ 3,156 $ 2,987 $ 3,126
======= ======= ======= ======= =======
Goodwill included in assets:
Air Conditioning Products $ 203 $ 334 $ 331 $ 337 $ 351
Plumbing Products 247 302 295 296 320
Automotive Products 419 446 427 393 431
------- ------- ------- ------- -------
Total goodwill $ 869 $ 1,082 $ 1,053 $ 1,026 $ 1,102
======= ======= ======= ======= =======
Capital expenditures:
Air Conditioning Products $ 93 $ 70 $ 45 $ 38 $ 33
Plumbing Products 88 93 55 46 48
Automotive Products 46 44 30 14 27
------- ------- ------- ------- -------
Total capital expenditures $ 227 $ 207 $ 130 $ 98 $ 108
======= ======= ======= ======= =======
Depreciation and amortization:
Air Conditioning Products $ 51 $ 51 $ 51 $ 53 $ 55
Plumbing Products 50 50 64(b) 49 49
Automotive Products 43 42 39 35 37
------- ------- ------- ------- -------
Total depreciation and amortization $ 144 $ 143 $ 154 $ 137 $ 141
======= ======= ======= ======= =======
</TABLE>
(a) Includes asset impairment charge of $235 million, of which $166 million is
included in Other and $69 million in Europe (see Note 2).
(b) Includes an asset loss provision of $14 million.
(c) U.S. export sales and operating income have been reclassified to Europe
and Other for 1995, 1994, 1993 and 1992 to conform with the 1996
classification.
43
<PAGE> 46
<TABLE>
<CAPTION>
Quarterly Data (Unaudited) 1996
------------- -------------- -------------- --------------
(Dollars in millions, except share data) First (a) Second Third Fourth
<S> <C> <C> <C> <C>
Sales $ 1,364.3 $ 1,518.3 $ 1,485.1 $ 1,436.9
Cost of sales 1,031.0 1,135.9 1,115.1 1,097.8
Income before income taxes and extraordinary item (188.3) 91.9 84.1 69.9
Income taxes 17.0 33.3 29.1 24.9
---------- --------- ---------- ---------
Net income (loss) $ (205.3) $ 58.6 $ 55.0 $ 45.0
========== ========= ========== =========
Per common share:
Net income (loss) $ (2.66) $ .75 $ .72 $ .57
========== ========= ========== =========
Average number of common shares (thousands) 77,311 77,876 78,242 78,501
Range of prices on common stock:
High $ 31 3/8 $ 33 3/8 $ 35 1/4 $ 39 3/4
Low $ 25 1/2 $ 26 1/2 $ 28 1/8 $ 34 1/4
</TABLE>
<TABLE>
<CAPTION>
1995
------------- -------------- ---------- --------------
(Dollars in millions, except share data) First Second Third Fourth
<S> <C> <C> <C> <C>
Sales $ 1,223.2 $ 1,370.8 $ 1,316.3 $ 1,311.2
Cost of sales 909.1 1,008.5 975.1 994.3
Income before income taxes and extraordinary item 45.4 85.0 67.0 29.5
Income taxes 18.9 35.5 23.6 7.1
--------- --------- --------- ---------
Income before extraordinary item 26.5 49.5 43.4 22.4
Extraordinary loss on retirement of debt (30.1) -- -- --
--------- --------- --------- ---------
Net income (loss) $ (3.6) $ 49.5 $ 43.4 $ 22.4
========= ========= ========= =========
Per common share:
Income before extraordinary item $ .38 $ .65 $ .57 $ .29
Extraordinary loss on retirement of debt (.43) -- -- --
--------- --------- --------- ---------
Net income (loss) $ (.05) $ .65 $ .57 $ .29
========= ========= ========= =========
Average number of common shares (thousands) 69,889 75,987 76,191 76,553
Range of prices on common stock:
High $ 25 $ 28 1/4 $ 32 $ 31 7/8
Low $ 19 5/8 $ 24 1/4 $ 26 $ 26 1/4
</TABLE>
(a)The first quarter of 1996 included a non-cash asset impairment charge of $235
million, on which there was no tax benefit.
(b)The first three quarters of 1996 have been restated to properly record costs
and expenses for Porcher S.A., the French plumbing products manufacturer
acquired in the fourth quarter of 1995. The restatement had the effect of
increasing the net loss in the first quarter by $3 million ($.03 per share)
and decreasing net income in the second and third quarters by $4 million
($.03 per share) and $2 million ($.01 per share), respectively.
44
<PAGE> 47
BOARD OF DIRECTORS
45
Emmanuel A. Kampouris (C-Chairman)
Chairman, President and Chief Executive Officer
American Standard Companies Inc.
Steven E. Anderson (A) (B)
Retired National Partner in Charge-Industries
KPMG Peat Marwick
New York, NY
Horst Hinrichs (C)
Senior Vice President, Automotive Products
American Standard Companies Inc.
George H. Kerckhove (C)
Senior Vice President, Plumbing Products
American Standard Companies Inc.
Shigeru Mizushima
President, Chief Operating Officer and Director
Daido Hoxan Inc.
Tokyo, Japan
Frank T. Nickell
President and Director
Kelso & Companies, Inc.
New York, NY
Roger W. Parsons (A-Chairman) (B)
Group Managing Director
Rea Brothers Group PLC
London, United Kingdom
J. Danforth Quayle (A) (B)
Former Vice President of the United States
Chairman, Circle Investors, Inc.
Indianapolis, IN
David M. Roderick
Chairman
Earle M. Jorgensen Company
Brea, CA
Retired Chairman
USX Corporation
Pittsburgh, PA
John Rutledge
Chairman
Rutledge & Company, Inc.
Founder and Chairman
Claremont Economics Institute
Greenwich, CT
Joseph S. Schuchert (B-Chairman) (C)
Chairman, Chief Executive Officer and Director
Kelso & Companies, Inc
New York, NY
Member of:
(A) Audit Committee
(B) Management Development and Nominating Committee
(C) Executive Committee
45
<PAGE> 48
OFFICERS
- --------------------------------------------------------------------------------
Emmanuel A. Kampouris
Chairman, President and Chief Executive Officer
Horst Hinrichs
Senior Vice President, Automotive Products
George H. Kerckhove
Senior Vice President, Plumbing Products
Giancarlo Aimetti
Vice President, Automotive Products, Austria Group
Fred A. Allardyce
Vice President and Chief Financial Officer
Alexander A. Apostolopoulos
Vice President and Group Executive, Plumbing Products,
Americas International
Thomas S. Battaglia
Vice President and Treasurer
Gary A. Brogoch
Vice President and Group Executive, Plumbing Products, Asia Pacific
Michael Broughton
Vice President, Automotive Products, United Kingdom
Roberto Canizares M.
Vice President, Air Conditioning Products, Asia-Pacific
Wilfried Delker
Vice President and Group Executive, Plumbing Products,
Worldwide Fittings
Adrian B. Deshotel
Vice President, Human Resources
Peter Enss
Vice President, Automotive Products, Germany
Luigi Gandini
Vice President, Special Projects
Daniel Hilger
Vice President, Air Conditioning Products,
Middle East and Africa
Richard A. Kalaher
Vice President, General Counsel and Secretary
W. Craig Kissel
Vice President and Group Executive, Air Conditioning Products,
Unitary Products Group
William A. Klug
Vice President and Group Executive, Air Conditioning Products,
International
Jean - Claude Montauze
Vice President, Automotive Products, France
Janet George Murnick, Ph.D
Vice President, Alimenterics, Medical Systems Group
G. Eric Nutter
Vice President and Group Executive, Plumbing Products, U.S.
Raymond D. Pipes
Vice President, Corporate Development
Bruce R. Schiller
Vice President, Air Conditioning Products, Compressor Business
James H. Schultz
Vice President and Group Executive, Air Conditioning Products,
North American Commercial Group
G. Ronald Simon
Vice President and Controller
Benson I. Stein
Vice President, General Auditor
Wolfgang Voss
Vice President and Group Executive, Plumbing Products, Europe
Robert M. Wellbrock
Vice President, Taxes
46
<PAGE> 49
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Corporate Headquarters
P.O. Box 6820
One Centennial Avenue
Piscataway, NJ 08855-6820
Tel: (908) 980-6000
Web Site Address: http:\\www.americanstandard.com
BUSINESS OPERATIONS
AIR CONDITIONING PRODUCTS
North American Commercial
The Trane Company
3600 Pammel Creek Road
La Crosse, WI 54601-7599
Tel: (608) 787-2000
Web Site Address: http:\\www.trane.com
International
The Trane Company
20 Corporate Woods Drive
Bridgeton, MO 63044-4419
Tel: (314) 770-6000
Web Site Address: http:\\www.trane.com\global
Unitary
The Trane Company
6200 Troup Highway
Tyler, TX 75707
Tel: (903) 581-3200
Web Site Address: http:\\www.trane.com
PLUMBING PRODUCTS
U.S. Plumbing Products
Americas International, Worldwide Fittings
American Standard
One Centennial Avenue
P.O. Box 6820
Piscataway, NJ 08855-6820
Tel: (908) 980-3000
Asia Pacific
World Standard Ltd.
14-16/F. St. John's Building
33 Garden Road
Central Hong Kong
Tel: (852) 2/971-3688
Europe
Ideal Standard
Boulevard du Souverain, 348
Box 1
B-1160 Brussels, Belgium
Tel: (32) 2/678-0911
AUTOMOTIVE PRODUCTS
WABCO Automotive
Products Group
Boulevard du Souverain, 348
Box 1
B-1160 Brussels, Belgium
Tel: (32) 2/663-0120
MEDICAL SYSTEMS
Alimenterics, Inc.
301 American Road
Morris Plains, NJ 07950
Tel: (201) 285-3100
Sienna Biotech, Inc.
9115 Guilford Road, Suite 180
Columbia, MD 21046
Tel: (301) 497-0007
Annual Meeting
May 1, 1997, at 10:00 AM (EDT)
Embassy Suites Hotel
121 Centennial Avenue
Piscataway, NJ
Transfer Agent and Registrar
Citibank, NA
120 Wall Street
New York, NY 10043
Stock Exchange Listing
New York Stock Exchange
Ticker Symbol: ASD
Additional Information:
A copy of the Company's Annual Report on
Form 10-K filed with the Securities and
Exchange Commission is available without
charge. A copy may be requested from:
Investor Relations Department
P.O. Box 6820
One Centennial Avenue
Piscataway, NJ 08855-6820
Tel: (908) 980-6038
Please call if you have any questions.
<PAGE> 50
AMERICAN
-----
STANDARD
-----
COMPANIES
P.O. Box 6820 One Centennial Avenue Piscataway, NJ 08855-6820 (908) 980-6000
<PAGE> 1
EXHIBIT 21
PARENTS AND SUBSIDIARIES
AMERICAN STANDARD COMPANIES INC. (DELAWARE) - REGISTRANT
Subsid-
iaries*
U.S. SUBSIDIARIES:
American Standard Inc. (Delaware) - Immediate Parent
The American Chinaware Company (Delaware)
Alimenterics Inc.
American Standard Credit Inc. (Delaware)
American Standard Financial Corporation
American Standard International Inc. (Delaware)
American Standard Medical Systems, Inc.
Amstan Trucking Inc. (Delaware)
A-S Energy, Inc. (Texas)
A-S Thai Holdings Ltd. (Delaware)
It Holdings Inc. (Delaware)
Sienna Biotech Inc.
Standard Compressors Inc. (Delaware)
Standard Sanitary Manufacturing Company (Delaware)
The Trane Company (Delaware)
Trane Export, Inc. (Delaware)
WABCO Automotive Control Systems Inc. (Delaware)
WABCO Company (Pennsylvania)
World Standard Ltd. (Delaware)
(American Standard Inc., American Standard International Inc.,
WABCO Company and Standard Sanitary Manufacturing Company - Immediate
Parents)
WABCO Standard Trane Holdings Inc. (Delaware)
FOREIGN SUBSIDIARIES:
Air Conditioning Products
(Wabco Standard French Holdings SNC - Immediate Parent)
Societe Trane (France)
(The Trane Company - Immediate Parent)
Trane S.A. (Switzerland)
(American Standard (U.K.) Limited - Immediate Parent)
Trane Limited (U.K.)
Trane (United Kingdom) Limited
Transportation Products
(WABCO Standard GmbH, WABCO Standard Trane Holdings Inc.,
and Ideal Standard S.p.A. - Immediate Parents)
WABCO Standard TRANE B.V. (Netherlands)
WABCO Standard French Holdings SNC (France)
WABCO Westinghouse S.A. (France)
WABCO France SNC (France)
WABCO Automotive AB (Sweden)
WABCO Schweiz AG (Switzerland)
WABCO Austria G.m.b.H. (Austria)
WABCO Belgium S.A.-N.V. (Belgium)
WABCO Automotive B.V. (Netherlands)
<PAGE> 2
PARENTS AND SUBSIDIARIES - (Continued) Subsid-
iaries*
Transportation Products (Continued)
(Ideal Standard S.p.A. and WABCO Standard Trane Holdings Inc.
-Immediate Parents)
American Standard (U.K.) Limited (England)
Clayton Dewandre Holdings Limited (England)
WABCO Automotive UK Limited (England)
The Bridge Foundry Company Limited (England)
(Ideal Standard S.p.A.-Immediate Parent)
WABCO Automotive Italia S.p.A. (Italy)
(Wabco Standard Trane Inc. - Immediate Parent)
Westinghouse Air Brake Brasil S.A. (Brazil)
(WABCO Standard Trane Holdings Inc., American Standard
International Inc.,
Standard Sanitary Manufacturing Company - Immediate Parents)
WABCO-Standard GmbH (Germany)
WABCO GmbH (Germany)
Perrot Bremsen GmbH (Germany)
Building Products
(American Standard Inc. - Immediate Parent)
American Standard Sanitaryware (Thailand) Public Company
Limited (Thailand)
EBS Eczacibasi Banyo Kuvetleri Sanayi Ve Ticaret A.S. (Turkey)
Egyptian American Sanitary Wares Co. S.A.E. (Egypt)
American Standard Philippine Holdings Inc. (Philippines)
Sanitary Wares Manufacturing Corporation (Philippines)
(Wabco Standard French Holdings SNC - Immediate Parent)
Ideal-Standard S.A. (France)
(Wabco Standard French Holdings SNC and Sanifrance, SNC --
Immediate Parents)
Ets. Porcher, S.A. (France)
P. Piel S.A. (France)
Porcher Distribution SNC (France)
(WABCO Westinghouse S.A. & Ideal Standard S.A. - Immediate
Parents)
Sanifrance, SNC
(Westinghouse Air Brake Brasil S.A. - Immediate Parent)
Ideal Standard Wabco Industria e Comercio Ltda. (Brazil)(a)
(American Standard (U.K.) Limited - Immediate Parent)
Ideal-Standard Limited (England)
(WABCO Standard Trane Holdings Inc. & WABCO Standard Trane B.V.
- Immediate Parents)
WABCO Standard Trane Inc. (Canada)(b)
<PAGE> 3
PARENTS AND SUBSIDIARIES - (Continued)
Building Products (Continued)
(WABCO Standard Trane Inc. & WABCO Standard Trane B.V. -
Immediate Parents)
Ideal-Standard, S.A. de C.V. (Mexico)
(WABCO Standard Trane Holdings Inc., WABCO Standard Trane B.V. -
Immediate Parents)
Ideal Standard S.p.A. (Italy)
Ideal Standard S.A. (Greece)
Sanistan B.V. (Netherlands)
(WABCO Standard Trane Holdings Inc., American Standard
International Inc. and Standard Sanitary Manufacturing
Company - Immediate Parents)
WABCO-Standard GmbH (Germany)
Ideal-Standard GmbH (Germany)
American Standard Korea, Inc. (Korea)
Miscellaneous
Standard Europe (EEIG)(France)(c)
All of the companies listed above operate under their company names and
use one or more of the trademarks listed under "Patents and Trademarks" of Item
I of this annual report on Form 10-K.
* The number shown under this heading indicates other
subsidiaries, not listed by name herein, which are in the same line of
business. The name of the immediate parent of such subsidiary or subsidiaries
appears opposite the number.
(a) This subsidiary participates in Building Products and
Transportation Products.
(b) This subsidiary participates in Building Products and Air
Conditioning Products.
(C) A European Economic Interest Grouping organized by certain French
and Italian subsidiaries of the Company.
There are omitted from the table a number of minor or inactive or
name-saving subsidiaries, all of which together would not constitute a
significant subsidiary.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 58,038
<SECURITIES> 1,661
<RECEIVABLES> 828,086
<ALLOWANCES> 28,294
<INVENTORY> 408,962
<CURRENT-ASSETS> 1,386,374
<PP&E> 1,582,498
<DEPRECIATION> 576,500
<TOTAL-ASSETS> 3,519,615
<CURRENT-LIABILITIES> 1,236,941
<BONDS> 1,741,847
0
0
<COMMON> 786
<OTHER-SE> (381,167)
<TOTAL-LIABILITY-AND-EQUITY> 3,519,615
<SALES> 5,804,561
<TOTAL-REVENUES> 5,804,561
<CGS> 4,379,765
<TOTAL-COSTS> 4,379,765
<OTHER-EXPENSES> 1,168,998
<LOSS-PROVISION> 11,225
<INTEREST-EXPENSE> 198,192
<INCOME-PRETAX> 57,606
<INCOME-TAX> 104,324
<INCOME-CONTINUING> (46,718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,718)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> 0
</TABLE>
